Excise tax in the United States

This article is about Excise in the United States. For other Excise taxes, see Excise.

Excise tax, sometimes called an excise duty, is a type of tax. In the United States, the term "excise" means: (A) any tax other than a property tax or capitation (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 gasoline, tobacco and alcohol (sometimes referred to as sin taxes). The tax may be a flat amount for a certain quantity of the item (for example, the state of Arkansas 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.

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 Code, 26 U.S.C. § 4001 through 26 U.S.C. § 5891, 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 Act), communications services (see Telephone federal excise tax), 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 Massachusetts charges what it calls an "excise tax" on all vehicles, even though this is, in fact, an ad valorem tax.

Another example of an excise is a tax or duty levied on the sale or importation of specific goods or a fixed rate tax on the sale or importation of specific goods; in this manner it differs from a general sales tax or value added tax.

Excise duties usually have one of two purposes: to raise revenue or to discourage particular behavior. Taxes such as those on sales of fuel, alcohol and tobacco 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 elastic.

A common example of an excise tax is the tax on sales of cigarettes: 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 Carolina to $3.46 per pack in Rhode Island. 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 tobacco and cigarette paper 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 importation, or at the point of sale. They are usually waived or refunded on goods being exported, so as to encourage exports, though they are often re-imposed by the importing country. Smugglers 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 customs duty or tariff.

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 tax. In the U.S. statutory sense, however, only the Subtitle D and E taxes are denoted as "excises."

Commentary on excises

Samuel Johnson's A Dictionary 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.

See also

• Her Majesty's Customs and Excise