Excise tax, sometimes called an excise
dutyIn economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...
, is a type of
taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
. In the United States, the term "excise" means: (A) any tax other than a property tax or
capitationA poll tax, head tax, or capitation tax is a tax of a portioned, fixed amount per individual in accordance with the census . When a corvée is commuted for cash payment, in effect it becomes a poll tax...
(i.e., an indirect tax, or excise, in the
constitutional law sense), or (B) a tax that is simply
called an excise in the language of the statute imposing that tax (an excise in the
statutory law sense). An excise under definition (A) is not necessarily the same as an excise under definition (B). Excise taxes are often seen as a tax on items like
gasolineGasoline or petrol is a petroleum-derived liquid mixture, primarily used as fuel in internal combustion engines...
,
tobaccoTobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...
and
alcoholIn chemistry, an alcohol is any organic compound in which a hydroxyl group is bound to a carbon atom of an alkyl or substituted alkyl group. An important group of acohols is formed by the simple acyclic alcohols, the general formula for which is C
nH
2n+1OH...
(sometimes referred to as
sin taxA sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods, usually alcohol and tobacco.-Summary:...
es). The tax may be a flat amount for a certain quantity of the item (for example, the state of
ArkansasArkansas is a state located in the southern region of the United States. Its name is an Algonquin name of the Quapaw Indians. Arkansas shares a border with six states, with its eastern border largely defined by the Mississippi River. Its diverse geography ranges from the mountainous regions of the...
charges 59 cents for a pack of 20 cigarettes).
Constitutional law
In the U.S.
constitutional law sense, an excise is essentially an
event tax (as opposed to a
state of being tax).
An example of a
state of being tax is an ad valorem property tax (which is not an excise). A property tax may be imposed on the property or the person who owns that property at a certain moment on (for example) January 1 of each year
based on the state of title at that given moment. The "state of title" (state of ownership) -- of property
by reason of its ownership -- is being taxed. The next year, on January 1, another such tax is imposed again in the same way on the same property and person, even though there has been no change in the ownership (no intervening event). The amount of the tax may change from year to year, based on the change in the value of the property or a change in the tax rate, or both, but those are separate issues governing how the tax is computed. What is being taxed, fundamentally, is the state of title—and the state of title is a state of being, not an event.
By contrast, excises are generally taxes on events. A realization of income (such as a receipt of wages) is an event. A sale is an event. A transfer of title by gift is an event. A transfer of title because of death is an event. Income taxes, sales taxes, and transfer taxes are all examples of event taxes. When a person receives money as income, it is not the ownership or state of title of the money itself that is taxed, but rather the fact that an income event has occurred. If the recipient takes the money and puts it under his or her bed for ten years, the
income tax is not re-imposed on that money every year the money is under the bed. Only one thing is taxed by the income tax: the income event.
For purposes of the U.S. Constitution, an excise is essentially any indirect tax, or event tax. An excise means any tax
other than (1) a tax on property by reason of its ownership; or (2) a capitation, or head tax. Thus, an excise is imposed on the taxable event, and not directly on the person or property.
For U.S. constitutional law purposes, a duty is nominally in a separate category from an excise. However, a duty is similar to an excise in that a duty is generally imposed on an event (such as an importation) and not on a state of being.
Statutory law
The term "excise" also has a
statutory law meaning. Generally, in the United States any statute that imposes a tax specifically denominated as an "excise" is an excise tax law. U.S. Federal statutory excises are (or have been) imposed under Subtitle D ("miscellaneous excise taxes") and Subtitle E ("Alcohol, Tobacco, and Certain Other Excise Taxes") of the
Internal Revenue CodeThe Internal Revenue Code is the main body of domestic statutory tax law of the United States organized topically, including laws covering the income tax , payroll taxes, gift taxes, estate taxes and statutory excise taxes...
, through , relating to such things as luxury passenger automobiles, heavy trucks and trailers, gas guzzler vehicles, tires, petroleum products, coal, vaccines, recreational equipment, firearms (see
National Firearms ActThe National Firearms Act , 73rd Congress, Sess. 2, ch. 757, , enacted 1934-06-26, currently codified as amended as ) is an Act of Congress passed in 1934 that, in general, imposes a statutory excise tax on the manufacture and transfer of certain firearms and mandates the registration of those NFA....
), communications services (see
Telephone federal excise taxThe federal telephone excise tax is a statutory federal excise tax imposed under the Internal Revenue Code in the United States under on amounts paid for certain "communications services." The tax was to be imposed on the person paying for the communications services but, under , is collected...
), air transportation, policies issued by foreign insurance companies, wagering, water transportation, removal of hard mineral resources from deep seabeds, chemicals, certain imported substances, non-deductible contributions to certain employer plans, and many other subjects. The Commonwealth of
MassachusettsThe Commonwealth of Massachusetts is a state in the New England region of the northeastern United States. It is bordered by Rhode Island and Connecticut to the south, New York to the west, and Vermont and New Hampshire to the north; at its east lies the Atlantic Ocean. Most of its population of...
charges what it calls an "excise tax" on all vehicles, even though this is, in fact, an
ad valorem taxAn ad valorem tax is a tax based on the value of real estate or personal property. It is more common than the opposite, a specific duty, or a tax based on the quantity of an item regardless of price....
.
Another example of an excise is a
taxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law.Taxes are also imposed by many subnational entities...
or
dutyDuty is a term that conveys a sense of moral commitment to someone or something. The moral commitment is the sort that results in action, and it is not a matter of passive feeling or mere recognition...
levied on the sale or importation of specific goods or a
fixed rate taxA flat tax is a tax system with a constant tax rate. Usually the term flat tax would refer to household income being taxed at one marginal rate, in contrast with progressive taxes that may vary according to such parameters as income or usage levels...
on the sale or importation of specific goods; in this manner it differs from a general
sales taxA sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions...
or
value added taxValue added tax , or goods and services tax is a consumption tax levied on any value that is added to a product...
.
Excise duties usually have one of two purposes: to raise revenue or to discourage particular behavior. Taxes such as those on sales of
fuelFuel is any material that is burned or altered to obtain energy and to heat or to move object. Fuel releases its energy either through a chemical reaction means, such as combustion, or nuclear means, such as nuclear fission or nuclear fusion...
,
alcoholIn chemistry, an alcohol is any organic compound in which a hydroxyl group is bound to a carbon atom of an alkyl or substituted alkyl group. An important group of acohols is formed by the simple acyclic alcohols, the general formula for which is C
nH
2n+1OH...
and
tobaccoTobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...
are often justified on both grounds. Some economists suggest that the optimal revenue raising taxes should be levied on sales of items having an inelastic demand, while behavior altering taxes should be levied where demand is
elasticIn economics, elasticity is the ratio of the percent change in one variable to the percent change in another variable. It is a tool for measuring the responsiveness of a function to changes in parameters in a relative way. Commonly analyzed are elasticity of substitution, price and wealth...
.
A common example of an excise tax is the tax on sales of
cigaretteA cigarette is a product consumed through smoking and manufactured out of cured and finely cut tobacco leaves and reconstituted tobacco, often combined with other additives, then rolled or stuffed into a paper-wrapped cylinder...
s: a fixed fee on each pack of cigarettes sold. The cigarette excise tax varies by state and ranges from 7 cents per pack in
South CarolinaSouth Carolina is a U.S. state that borders Georgia to the south and North Carolina to the north. Originally part of the Province of Carolina, the Province of South Carolina was one of the 13 colonies that declared independence from the British Crown during the American Revolution. The colony was...
to $3.46 per pack in
Rhode IslandRhode Island and Providence Plantations, more commonly referred to as Rhode Island , is a state in the New England region of the United States. It is the smallest U.S. state by area...
. The excise tax doubles or even triples the retail cost of cigarettes in some states, but can be still avoided in many states by buying
tobaccoTobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...
and
cigarette paperRolling papers are small sheets, rolls, or leaves of paper which are sold for rolling one's own cigarettes either by hand or with a rolling machine. When rolling a cigarette, one fills the rolling paper with tobacco, shag, cannabis or other herbs....
separately.
A reason why the governments state that excise taxes should exist is to internalize external costs. For example, the alcohol excise tax could be used to pay for the treatment of alcohol-caused diseases.
Excise taxes can be imposed at the point of production or
importAn import is any good or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Import goods or services are provided to domestic consumers by foreign producers...
ation, or at the point of sale. They are usually waived or refunded on goods being
exportIn economics, an export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. Export goods or services are provided to foreign consumers by domestic producers. Export is an important part of international trade...
ed, so as to encourage exports, though they are often re-imposed by the
importAn import is any good or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Import goods or services are provided to domestic consumers by foreign producers...
ing country.
SmugglerSmuggler is a production company founded in 2002 by Patrick Milling Smith and Brian Carmody. Last year Smuggler launched Honeyshed, which appeared at the Sundance Festival where the short film Force 1, created for eBay, was a selection. They have also created several television shows for...
s will seek to obtain items at a point at which they are not taxed and then sell them at price between the pre-tax and post-tax price. They also look to find loopholes, which may exist through importing to different countries, before then exporting to the destination country.
For similar items, excise duties are the same for imported and domestically produced goods; if the tax is different, then there is an explicit or implicit
customsCustoms is an authority or agency in a country responsible for collecting and safeguarding customs duties and for controlling the flow of goods including animals, personal effects and hazardous items in and out of a country. Depending on local legislation and regulations, the import or export of...
duty or
tariffA tariff is a duty imposed on goods when they are moved across a political boundary.-History:...
.
An unusual example of an excise tax is found in the State of Hawaii. In lieu of a sales tax, the State of Hawaii imposes a General Excise Tax, or GET, on all business activity in the State. The GET is charged at a rate of 4% for most businesses and 0.5% for wholesalers. The tax is imposed on all business entities, so in essence, the tax is collected at every level of production (material supplier to manufacturer to wholesaler to retailer.) The GET is also charged on all business service activity such as real estate agent commissions, lawyer fees and the like. With Hawaii's industry heavily dependent on tourism and tourist spending, the State regularly raises nearly half its government revenues through the imposition of the GET. Hawaii's GET has been criticized for having a disproportionate impact on low-income families, owing to the fact it is charged on intermediary transactions (such as those between wholesaler and retailer) as well as services, resulting in a pyramiding effect as costs rise in relation to final retail prices.
Comparison of differing definitions of "excise" under U.S. law
In the U.S.
constitutional law sense, an excise includes gift taxes, estate taxes, payroll taxes, sales taxes, miscellaneous excise taxes, and income taxes on any income other than income from property, etc. -- in short, any tax that is not a
direct taxThe term direct tax has more than one meaning: a colloquial meaning and, in the United States, a constitutional law meaning. Certain taxes may be direct taxes in the colloquial sense but indirect taxes in the constitutional sense....
. In the U.S.
statutory sense, however, only the Subtitle D and E taxes are denoted as "excises."
Commentary on excises
Samuel JohnsonSamuel Johnson , often referred to as Dr. Johnson, was an English author who made lasting contributions to English literature as a poet, essayist, moralist, novelist, literary critic, biographer, editor and lexicographer. Johnson was a devout Anglican and political conservative, and has been...
's
A Dictionary of the English LanguagePublished on 15 April 1755 and written by Samuel Johnson, A Dictionary of the English Language, sometimes published as Johnson's Dictionary, is among the most influential dictionaries in the history of the English language....
defined
excise in 1755 as
A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid.