What is Excise Tax and How Do I Use It?

Professional Tax Team
January 28, 2022 0 Comments

Excise Tax 

 Excise Tax refers to taxes on the sale of an individual unit of goods or services. The US Government generates most of its taxes from Excise Tax. Excise Tax depends on the price and supply and demand of goods and services. Deadweight loss is the cost to society, or it is the deficiency caused by market inefficiency (the inefficient use of resources). 

 All About Excise Tax  

We often refer to Excise Tax as Duty Tax. It is a tax charged on the sale of certain items, services, and activities. It is a flat rate charged on goods. 

 Excise Tax is not direct taxation. It is a form of indirect taxation. The consumer does not pay directly for it. The suppliers add Excise Tax onto goods and services. When goods reach consumers, they have already factored the final price. 

 As a business owner, it is your responsibility to collect and pay the taxes. That is, if they subject the goods you sell in your business to excise tax. 

 Excise Tax is charged as a percentage. Or it is charged as a per unit tax of the sales price. 

 Per unit tax -taxes are charged for every unit sold. 

 Per percentage method – Excise Taxes are charged as a percentage of the services or goods. 

 This might not affect the result, but it will affect demand as the price of goods increase. 

 Duty Tax is one of the most important taxes your business will pay in the United States. Your accounting team can assist and show you how it works. 


Who Pays Excise Tax? 

  • We always factor Duty Tax into the cost of any product or service. We do not list it as a separate entity. 
  • In most instances, American consumers are not aware they are paying taxes on the goods or services they purchase. 
  • If your business needs to collect Excise Taxes, you will collect it from your customers before paying your Excise Taxes. These are then paid to the government. 
  • You will do this quarterly. 
  • You need to fill out a Form 720, Quarterly Federal Excise Tax Return. 
  • There could be additional filing requirements. 


Are There Any Exemptions for Excise Taxes? 

 You might quality for a statutory exemption. NGOs, emergency services, and Government organizations are sometimes exempt from certain tax exemptions. 

 If you can get an Excise Tax exemption for your business, keep careful records for refunds at the end of the tax year. 

 There is a form which is the 8849 Form that you can submit to qualify for an exemption. This can be found easily on the IRS website.  

Which Specific Goods Have Excise Tax Levies? 

  • Airline tickets – percentage per price 
  • Hydrocarbon fuels-per unit – these include heavy and light fuels, biofuels, and gasoline. 
  • Alcohol per unit – this includes wine, beer, and spirits. 
  • Firearms and ammunition per unit. 
  • Indoor tanning services – percentage per price 
  • Other examples include heavy trucks, outdoor fishing equipment, and telephone services. 
  • Tobacco products, including cigars, rolling tobacco, chewing tobacco, and cigarettes. 
  • Gambling activities such as bingo, the National Lottery, machine games, and online games. All these gambling activities involve the betting of money. 

We often refer to the taxes on these products and services as “Sin Tax”. 


Differences Between Sales Tax and Excise Tax? 

 Sales Tax  

 There are differences between Sales Tax and Excise Tax and the biggest difference between the two is that, Sales Tax applies to almost all products and services. You pay Sales Tax on everything from clothing to household furniture. 

 There are a few items and services that are exempt from Sales Tax, but these are far and few between. 

 We calculate Sales Tax as a percentage of the purchase price. 

 The more an item costs, the more percentage tax you will pay on the actual purchase price. 

 Excise Tax  

A much smaller range of goods and services are eligible for Excise Tax, and they are much less than goods that pay Sales Tax. 

 We often charge Excise Tax on a per unit rate. An example would be that you will pay the same Excise Tax for a bottle of alcohol, regardless of the price of the alcohol. 


Why Do We Refer to Excise Tax as a “Tax” When it is a “Duty”? 

 Duty is the charge of specific goods, as an excise is an indirect tax. 

 We expect the individual who pays the cost to the government to recover his or her losses through the sale of goods or services to the purchaser. 

 We impose Excise Tax over and above Sales Tax or Value-Added Tax. 


 There are 3 Main Differences Between Excise Tax, VAT and Sales Tax 

  1. We usually apply Excise Tax to a small range of products. 
  2. Excise Tax is usually bigger. It accounts for a higher portion of the product’s retail price. 
  3. Excise Tax is usually per unit. It charges a specific price for a unit (or quantity) of the goods bought. VAT or Sales Tax is an Ad Valorem (according to value) Tax. We charge this in direct relation to the price of the goods. 

Why Excise Tax? What is The Purpose Behind This Tax?  

“Sin Tax” or Excise Duty is a tax created to discourage consumers from purchasing specific items. Excise Duty is a direct tax. The consumer does not pay for this tax. They do, however, pay more for a specific product. 

Since certain goods are more expensive, the idea behind Excise Duty is to discourage consumers from buying these products. These are often goods considered harmful to the health of a consumer, or it is harmful to the environment. 

Why You Should Get in Touch with Us Today! 

Did you know the fuel you use to power your equipment in your business is taxed? Now is time to get your Excise Tax refunded. You are probably wondering why you waited so long to file for it! 

We can help you through the process of getting what you are eligible to receive. Through our expertise, we prepare reporting requirements for the Internal Revenue Service. We use the relevant information from you and write it off as a business expense. 

Let us maximize the recovery of your excise tax. Contact  us today!