Excise Tax (Duty)

Definition

The term excise tax refers to an indirect tax that is paid by producers or retailers on certain products or goods.  An excise tax can be an ad valorem tax, which is based on the value of the transaction, or a fixed dollar amount.

Explanation

Also known as an excise duty, an excise tax is considered an indirect form of taxation, since an intermediary such as the producer of the goods or the retailer selling the goods pay the tax.  This mechanism is popular with politicians, since it lowers the consumer resistance to such a tax.

The tax can be collected based on the value of the item being sold or a fixed dollar amount.  For example, the excise tax on gasoline is collected on a "per gallon" basis.  Generally, excise taxes are put in place to raise revenue and / or discourage consumers to purchase a product.  This is the rationale for excise taxes levied on both alcohol and tobacco.

Unlike a sales tax, which is paid by the consumer at the time of purchase, an excise tax is normally included in the selling price of the item.  In addition to alcohol, gasoline and tobacco, excise taxes are collected on the sale of airline tickets, heavy trucks, coal, automobiles that are categorized as gas guzzlers, recreational vehicles, vaccines, automobile tires, and firearms.

Related Terms

flat tax, progressive tax, expatriation tax, tax treaty, ad valorem tax, Gas Guzzler Tax, FUTA, franchise taxsales tax, regressive tax, marginal tax rate