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Excise Tax

Excise Tax

What is excise tax?

Excise tax is a flat-rate tax that applies to specific goods, services, and activities. In the U.S., goods like liquor and services like indoor tanning are assessed an excise tax, which applies to every unit or occurrence no matter what its cost. Revenue made by excise taxes targets specific necessities in a society frequently straightforwardly connected with the great or service being taxed.

More profound definition

Excise taxes are a sort of indirect tax, like sales taxes, in that they're given to the customer at the point of sale. Yet, sales tax varies from excise tax in that it applies to practically all goods while excise taxes just apply in specific cases. These include:

  • Air fare and fly fuel.
  • Liquor and tobacco products.
  • Gas.
  • Indoor tanning and medical gadgets.
  • Telephone services.
  • Guns.

In the U.S., excise taxes are exacted at the hour of production or when a service is delivered, then, at that point, factored into the item's cost, implying that a consumer generally doesn't have the foggiest idea what he's paying in excise tax on the off chance that he's aware he's paying one by any means. Contingent upon the thing, the excise tax may be assessed as a percentage of the last cost, for example, the 7.5% charged on air fare, or as a flat dollar amount for each unit, similar to the 18.4 pennies charged per gallon of fuel. There might even be extra excise taxes at the state level.
Some of the time alluded to as a "transgression tax," the excise tax has been utilized to deter what the government thinks about unfortunate behavior or to route the revenue collected from it toward fighting the negative outcomes of that behavior. Notwithstanding, excise taxes additionally go toward paying for expenses connected with the great being taxed, as in how new road construction is funded by the fuel tax. Congress figures out what things have excise tax by making corrections to the Internal Revenue Service (IRS) tax code.
You'll barely notice the excise tax on air travel when you book a flight with a high-reward airline credit card.

Excise tax model

One of the ways that President Barack Obama's Affordable Care Act (ACA) is intended to bring down medical services costs is by imposing different excise taxes across wellbeing related expenses. One of these excise taxes is on alleged "Cadillac" insurance plans, which are health insurance plans that have strangely high premiums. The law characterizes such plans as those with premiums that cost more than $10,200 for an individual and $27,500 for a family, and charges insurers 40% in taxes for each dollar over those amounts. At the point when the Cadillac tax comes full circle, the revenue created is expected to pay for coverage for the people who can't manage the cost of insurance while deterring insurers from raising premiums too high.


  • Excise taxes can be promotion valorem (paid by percentage) or specific (cost charged by unit).
  • Excise taxes are taxes required on specific goods or services like fuel, tobacco, and liquor.
  • Excise taxes are fundamentally taxes that must be paid by organizations, normally expanding prices for consumers indirectly.
  • Some excise taxes can be required straightforwardly from the consumer like property taxes and excise tax punishments on certain retirement account activities.