In contrast to sales tax, levied on nearly everything and paid directly by the consumer, excise tax is applied only to certain goods and is paid by the merchant. Although entrepreneurs prefer to focus on generating revenue, excise tax is one of the many details business owners must understand to run a successful operation.

In this article, we’ll answer the question “What is excise tax?”, provide an overview of commonly taxed goods and their associated rates, and show you how to file with the IRS properly.

When the time is right, consider indinero’s expert business tax services. We’ll handle accounting and bookkeeping details so you can focus on what you do best. 

Excise Definition

Excise tax is levied on certain goods and commodities produced or sold within a country and on licenses granted for certain activities. 

In decades past, the tax was a significant revenue generator for the US government. However, as the law evolved, the proportion of revenue collected this way declined. Now, it’s primarily used to discourage the consumption of certain products, such as tobacco or alcohol, and to regulate particular industries, such as those that produce significant pollution. 

Excise Tax vs Sales Tax

For business owners, excise and sales taxes may seem similar. They’re collected on goods and services, contribute to higher prices, and are the business’s responsibility to collect and remit to the IRS. 

However, there are some slight differences: 

Sales Tax	Excise Tax
Charged as a percent	Charged as a percent or flat amount
Blanketed across all goods and services	Applied only to specific goods and services
Paid by the consumer	Paid by the business
Applied at point of sale	Applied to production or consumption; not necessarily point of sale

State and federal governments assess many different excise taxes. However, five categories are the most important: highway, aviation, tobacco, alcohol, and health. These accounted for 93% of total excise tax receipts in 2019.

Here is a list of the most common excise tax rates business owners should know.

Good	State Tax (Varies)	Federal Tax
Gasoline1	$0 – $0.51 per gallon	$0.184 per gallon
Diesel2	$0- $0.57 per gallon	$0.244 per gallon
Beer3	$0.06 – $1.05 per gallon	$3.5 per barrel, up to 60,000 $16 per barrel, gallon 60,001 +
Wine4	$0 – $1.7 per gallon	$1.07 – $3.15 per gallon, depending on ABV
Spirits5	$0 – $14.27 per gallon	$2.7 per gallon, up to 100,000 $13.34 per gallon, gallon100,001 +
Cigarettes6	$0.17 – $5.35 per pack of 20	$1.01 per pack of 20
Cigars7	$0.02 thru 75% of price per pack of 20	$1.01 per pack of 20
**Healthcare8	**Varies	**Varies

**We’ve included this category because it is a significant proportion of excise tax revenue. However, we’ve omitted details because many categories and rates fall under this umbrella: prescription drugs, medical devices, and various health insurance taxes written to accommodate the complexity of US healthcare.

Other Excise Taxes

While the above constitutes the lion’s share of all excise taxes collected, federal and state entities charge quite a few others. Depending on your business, you may want to keep these in mind as well: 

• Aviation fuel
• Guns
• Ammunition
• Luxury chars
• Jewelry
• Furs
• Airline tickets
• Environmental taxes
• Mass communication services
• Gambling 
• Recreational cannabis
• Carbon emissions
• Sugary drinks 
• Financial transactions

Excise Tax Deductions

Excise taxes contribute to a higher cost of doing business. Still, as long as the tax is directly related to your business’s ordinary and necessary operations, you can take advantage of them as deductions. 

However, some taxes, such as on luxury items, have different rules. It’s important to know that excise tax on fuel is already included in the cost; don’t double deduct when you take the mileage reimbursement for company vehicle costs. 

To maximize your deductions, the key is to have a system for tracking business expenses. Modern software solutions can link to business accounts and take care of this automatically. If you’re using a spreadsheet to track finances, consider switching to another method or if your business is complex enough, consider indinero’s online bookkeeping services.