The manufacturer or importer pays the federal excise tax, but the cost usually gets passed to you at the checkout
Federal excise tax is collected from the producer or importer of the taxed product — not from you directly when you buy it. The IRS sends the bill to the company that made the item or brought it into the country. But that company almost always raises the price of the product to cover what they owe, so you end up paying the tax through a higher price tag.
The actual flow works like this: a manufacturer pays excise tax to the IRS on gasoline, cigarettes, alcohol, or other taxed goods. They then sell the product to a wholesaler or retailer at a price that includes their tax cost. The retailer sells it to you at a price that includes everyone's markup. You see one final price, but the excise tax is built into it.
Some states and cities also charge their own excise taxes on top of the federal one. When you buy a pack of cigarettes, for example, you might pay federal excise tax, state excise tax, and local excise tax all at once — but the receipt usually shows only the total price, not each tax broken out.
Key Takeaways
- The manufacturer or importer of a taxed product owes the excise tax to the IRS, not the retailer or consumer.
- Manufacturers pass the cost to retailers, who pass it to you through higher prices — so you pay it indirectly.
- Federal excise taxes explore to gasoline, diesel, alcohol, tobacco, firearms, fishing equipment, and a few other categories.
- Many states and cities add their own excise taxes on top of federal ones, especially on fuel and cigarettes.
- You will not see "excise tax" as a separate line on most receipts because retailers include it in the final price.
How the tax moves from manufacturer to you
The IRS collects excise tax from the business that first makes or imports the product. For gasoline, that is the refinery or the company that brings fuel into the United States. For cigarettes, it is the tobacco manufacturer. For alcohol, it is the distillery or brewery. That business files an excise tax return with the IRS and pays what it owes based on how much product it sold.
The manufacturer then builds that tax cost into the wholesale price it charges to distributors and retailers. A gas station pays more per gallon to its supplier because the supplier has already paid federal excise tax. The gas station then sets its pump price to cover that cost plus its own markup. When you fill your tank, the excise tax is already included in the price per gallon — you just do not see it labeled separately.
This system is called a pass-through tax. The legal obligation to pay sits with the manufacturer, but the economic burden shifts to the consumer through the supply chain.
Which products have federal excise tax
Federal excise tax applies to a specific list of goods. The main categories are fuel (gasoline and diesel), alcohol (beer, wine, and spirits), and tobacco products. The IRS also collects excise tax on firearms and ammunition, fishing equipment, indoor tanning services, and certain medical devices.
The tax rate varies by product. Gasoline has a federal excise tax of 18.4 cents per gallon; diesel is 24.4 cents per gallon. These rates have not changed since 1993. Cigarettes face a federal excise tax of $1.01 per pack of 20. Alcohol rates depend on the type — beer is taxed per barrel, wine per gallon, and spirits per proof gallon.
Not every product you buy has an excise tax. Groceries, clothing, most household goods, and services like haircuts do not. Excise tax is reserved for items the federal government has chosen to tax for policy reasons — usually to discourage consumption (tobacco, fuel) or to fund specific programs (fuel tax funds highway maintenance).
State and local excise taxes on top of federal
Many states impose their own excise taxes on the same products the federal government taxes, and some add excise taxes to items the federal government does not. State gasoline excise tax rates range from about 8 cents to over 50 cents per gallon, depending on the state. State cigarette excise taxes range from 17 cents to over $4 per pack.
Cities and counties sometimes add a third layer. Some cities tax recreational marijuana at a local excise tax rate. A few municipalities have local fuel taxes. When you buy a gallon of gas in a high-tax state and city, you might pay federal excise tax, state excise tax, and local excise tax all combined — but the pump shows only one price.
The total tax burden on a product can be substantial. In some states, excise taxes make up 40 to 50 cents of every dollar spent on a pack of cigarettes. On gasoline, excise taxes (federal plus state) can add 30 to 60 cents per gallon depending on where you live.
Why manufacturers do not always show excise tax separately
Retailers are not required to break out excise tax as a separate line item on your receipt. Most include it in the final price and do not label it. This is legal and standard practice. When you buy a gallon of milk, the receipt shows one price. When you buy a gallon of gasoline, the pump shows one price per gallon. The excise tax is in both, but you see only the total.
Some retailers do show excise tax separately — particularly gas stations and liquor stores — but they are not obligated to. The IRS cares that the manufacturer paid the tax, not how the retailer presents it to you. This can make it hard to see exactly how much excise tax you are paying on any single purchase.
How to find out what excise tax you paid
If you want to know the excise tax rate on a specific product, the IRS website lists federal rates by category. For gasoline, the rate is always 18.4 cents per gallon (or 24.4 for diesel). For cigarettes, it is $1.01 per pack. For alcohol, the IRS publishes rates by type and proof.
To find your state and local rates, check your state's department of revenue website or your city or county tax office. Many states publish excise tax rates online, and some allow you to calculate the total tax on a specific product. If you buy the same taxed items regularly, knowing the rates can help you understand how much of your spending goes to tax.
Your receipt usually will not break this out for you, so you may need to do the math yourself. If you buy a pack of cigarettes for $8.50 in a state with a $2.00 state excise tax, you know at least $1.01 (federal) plus $2.00 (state) is tax — $3.01 of that $8.50 goes to excise tax before any sales tax.
Frequently Asked Questions
Do I pay excise tax when I buy something online?
Yes, if the product is subject to federal excise tax, the tax is included in the price or added at checkout. Online retailers must collect and remit excise tax the same way brick-and-mortar stores do. The tax may be shown separately or rolled into the total — it depends on the retailer.
Can I get a refund of excise tax I paid?
Consumers cannot claim a refund of excise tax paid on personal purchases. Excise tax is a final tax on the product. Some businesses can claim a refund if they buy a taxed product for resale or for a specific business use — for example, a farmer buying diesel fuel for farm equipment — but this requires filing a claim with the IRS and meeting strict conditions.
Why does the same product cost more in one state than another?
State and local excise taxes are a major reason. A gallon of gasoline or a pack of cigarettes costs significantly more in high-tax states than low-tax states, even before sales tax. Differences in state excise tax rates can add 30 cents to several dollars to the same product depending on location.
Is excise tax the same as sales tax?
No. Sales tax is a percentage of the purchase price and applies to most goods. Excise tax is a fixed amount per unit (per gallon, per pack, per barrel) and applies only to specific products. You pay both on taxed items — excise tax is built into the price, and sales tax is added on top.
Who decides which products get excise tax?
Congress decides which products the federal government taxes with excise tax. States and cities decide their own excise taxes independently. The federal government has taxed gasoline, alcohol, and tobacco for over a century. States have added their own taxes at different times, which is why rates vary so widely by location.