An excise tax is a tax on the sale of a specific product, paid by the manufacturer or seller, and usually passed to you in the price you pay at checkout.
Unlike a sales tax that applies to most goods, an excise tax targets particular items: gasoline, cigarettes, alcohol, airline tickets, fishing equipment, and others. The federal government collects excise taxes on these products, and many states add their own on top. The tax is built into the price before you see it on the shelf or pump, so you often do not see it listed separately the way sales tax appears on a receipt.
The amount varies by product and by state. Federal excise tax on gasoline is 18.4 cents per gallon; on cigarettes it is $1.01 per pack. A state might add another 20 cents per gallon of gas or $2 per pack of cigarettes. Some excise taxes are a flat amount per unit (per gallon, per pack), while others are a percentage of the sale price.
Key Takeaways
- Excise taxes are built into the price of specific products like fuel, alcohol, and tobacco, not added at checkout like sales tax.
- The federal government sets a base excise tax on each product, and individual states can add their own tax on top of that amount.
- Excise taxes are paid by the manufacturer or seller first, but the cost is passed to the consumer through higher prices.
- The tax rate depends on the product and your location, so the same item costs different amounts in different states.
Why excise taxes exist and who collects them
Excise taxes serve two purposes: they raise money for the government, and they discourage consumption of products the government considers harmful or wants to limit. The federal excise tax on gasoline, for example, funds highway maintenance and public transportation through the Highway Trust Fund. Taxes on alcohol and tobacco are partly intended to reduce use of those products.
The federal government collects excise taxes through the Internal Revenue Service (IRS). States collect their own excise taxes through their department of revenue or equivalent agency. When you buy a product subject to excise tax, the seller remits the tax to the appropriate government body — usually monthly or quarterly, depending on the product and the state.
Which products have federal excise taxes
The IRS maintains a list of products subject to federal excise tax. The major categories are:
- Fuel and vehicles: gasoline, diesel, kerosene, and certain heavy trucks and trailers
- Alcohol: beer, wine, and spirits, with different rates for each type
- Tobacco: cigarettes, cigars, and smokeless tobacco
- Transportation: airline tickets, ship passage, and rental cars
- Equipment: fishing rods and tackle, bows and arrows, firearms and ammunition
- Other: indoor tanning services, coal, and certain chemicals
Not every state taxes all of these products. Some states do not have an excise tax on alcohol or tobacco, or they tax them at a lower rate than the federal level. A few states have no gasoline excise tax, though most do. You can find your state's excise tax rates through your state's department of revenue website.
How excise tax rates are set and change
Congress sets federal excise tax rates through legislation. These rates do not change automatically with inflation — Congress must pass a new law to raise or lower them. The federal gasoline excise tax, for example, has been 18.4 cents per gallon since 1993. States set their own rates independently, and some states adjust them annually or tie them to inflation.
When Congress or a state legislature changes an excise tax rate, the change takes effect on a specific date set in the law. Manufacturers and sellers are notified in advance so they can adjust their prices and accounting systems. You will see the change reflected in prices at the pump or store on or shortly after the effective date.
The difference between excise tax and sales tax
Sales tax applies to most retail purchases and is usually a percentage of the sale price (5 to 10 percent depending on your state and locality). Excise tax applies only to specific products and is often a fixed amount per unit rather than a percentage. Sales tax is added at checkout and appears on your receipt; excise tax is included in the price before you see it.
A gallon of gasoline illustrates the difference. The price you see at the pump includes the federal excise tax (18.4 cents), your state's excise tax (varies by state), and your state's sales tax (if your state charges sales tax on fuel). The excise and sales taxes are not itemized separately on your receipt — they are part of the total price per gallon.
How excise tax affects the price you pay
Excise taxes increase the cost of the product to you, the consumer. A manufacturer or seller pays the excise tax to the government, then raises the price of the product to cover that cost and maintain profit. The higher price is what you see when you buy the item.
The total tax burden on a single product can be substantial. A pack of cigarettes in a high-tax state might include 50 cents in federal excise tax, $2 or more in state excise tax, and sales tax on top of that. A gallon of gasoline in some states carries 40 to 50 cents in combined federal and state excise tax, plus sales tax. Over time, these taxes add up significantly for regular purchases.
Frequently Asked Questions
Do I pay excise tax on everything I buy?
No. Excise tax applies only to specific products: fuel, alcohol, tobacco, airline tickets, rental cars, fishing equipment, firearms and ammunition, and a few others. Most everyday items like groceries, clothing, and household goods are not subject to federal excise tax, though they may be subject to sales tax.
Why is excise tax not shown separately on my receipt?
Excise tax is included in the price before you buy the item, unlike sales tax which is added at checkout. The seller is required to pay the excise tax to the government, so they build it into the price. You are paying it, but you do not see it as a line item on your receipt.
Can excise tax rates change during the year?
Federal excise tax rates change only when Congress passes new legislation, which is rare. State excise tax rates vary — some states adjust them annually, while others change them only when the legislature passes a new law. Check your state's department of revenue website to see if rates have changed recently.
Is excise tax the same in every state?
No. The federal excise tax is the same everywhere, but every state sets its own excise tax rates on top of the federal tax. A gallon of gasoline or a pack of cigarettes costs different amounts in different states because of these varying state excise taxes.