The excise tax is an indirect tax collected from the sale of goods. It is a percentage of the sale price, so a luxury car would require a higher tax than a cheap one. It is collected by local, state, and federal governments. In the United States, it is collected on a wide variety of products, though it is primarily used by the states. In 1991, federal excises totaled $42 billion, excluding customs duties. These funds accounted for 16.2 percent of state tax revenues. In addition, local governments collected $10 billion in excises in 1991, or 4.5 percent of their own-source tax revenues.
Excise taxes can apply to different products and stages of the supply chain. It is important to understand the scope of the tax, which can be “trapped” when goods cross international borders. Using a unified strategy that leverages data from the global financial system can help businesses effectively manage excise tax. In addition to knowing the nuances of excise taxes, a unified approach can help you avoid costly mistakes.
Federal excises include various fuels, truck trailers, luxury items, telecommunications services, and gambling. State excises apply to a narrower range of items and activities, and are collected by local governments at lower rates than federal excises. In addition to excise taxes, tobacco and fuel taxes are also collected. Some of these taxes are assigned to specific trust funds and therefore collected at lower rates than federal ones.
Excise taxes are often a hidden tax that many consumers do not even realize they are paying. In most cases, excise taxes are included in the price of the goods and are not listed separately like sales taxes. While consumers are aware of sales taxes, many do not understand their impact on their purchases. They usually purchase goods without knowing it and then pay the taxes afterward. Luckily, this tax is paid by the manufacturer and retailer of those products.
Excise taxes raise revenue and discourage consumption of certain goods. Most excise taxes are justified on both grounds, although some economists believe that optimal revenue-raising taxes should be imposed on products with high-demand elasticity, and behavior-altering taxes should be placed on inelastic products. By assessing these costs, excise taxes can be used as a tool to achieve progressivity in tax policy. If you’re wondering why excise taxes are used, the answer might surprise you.
The main purpose of excise taxes is to finance infrastructure. For example, airports charge taxes on airplane tickets to pay for airport improvements. However, most customers do not even realize that they are paying these taxes because the tax is automatically included in the price of the product. It is not listed separately like sales tax. Aside from the obvious reason, the tax funds the development of the airports and highways. And, unlike sales tax, most customers are unaware that they are paying the tax when they purchase goods and services.
In addition to sales tax, the excise tax is also collected from consumers. Unlike sales tax, the excise tax is applied to specific goods and services. Consequently, the end consumer might be paying an excise tax even if the transaction is not completed. It is also known as selective sales tax or differential commodity taxes. The difference between sales tax and excise tax is not as big as it seems. So, what’s the difference between the two?