Cameron Miranda
Excise taxes are imposed on certain goods, services, and activities by federal, state, and local governments. Excise taxes are typically paid by businesses, which pass the cost onto the consumer by incorporating it into the product's price. However, some excise taxes are paid directly by consumers, such as property taxes and levies on certain retirement account activities. Excise taxes are separate from income taxes and other taxes that corporations must pay, such as income taxes. Businesses charging and receiving excise taxes are required to file Form 720 Federal Excise Tax Return on a quarterly basis. Excise taxes are used to fund various projects and programs, such as highway and airport improvements, and make up a small portion of total government revenue.
| Characteristics | Values |
|---|---|
| Definition | Taxes imposed on certain goods, services, and activities |
| Taxpayers | Importers, manufacturers, retailers, and consumers |
| Tax Filing | Form 720, Quarterly Federal Excise Tax Return |
| Payment Methods | Paper or electronic filing |
| Tax Rates | Either a fixed percentage or a flat dollar amount |
| Examples | Fuel, airline tickets, tobacco, alcohol, health-related goods and services, motor vehicles |
| Exemptions | Sales to government and nonprofit organizations, certain manufacturing inputs |
| Enforcement | IRS authorized to sue and incarcerate for violations |
| State Variations | Hawaii has a General Excise Tax (GET) on all business activity |
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What You'll Learn
Excise tax laws and exemptions
Excise taxes are U.S. government-imposed taxes on certain products, services, and activities. They are charged to the importer, manufacturer, retailer, or consumer. Excise taxes are imposed within the boundaries of a specific government. In the United States, excise taxes are applied to common goods such as motor fuel, tobacco, and airline tickets. Excise taxes are usually imposed at the federal level but can also be applied by state and local governments.
Excise taxes are typically paid by businesses but are passed on to consumers in the form of higher prices. Excise taxes can be ad valorem (paid by percentage) or specific (cost charged by unit). For example, the Internal Revenue Service (IRS) levies a 10% excise tax on indoor tanning services. This means that if a tanning salon charges $100 for a session, it must pay the IRS $10 in excise tax. Other types of ad valorem excise taxes include firearms (10%), airline tickets (7.5%), and heavy trucks (12%).
Some excise taxes are paid directly by consumers, including property taxes and levies on certain retirement account activities. Excise taxes are primarily business taxes and are separate from other taxes that corporations must pay, such as income taxes. Businesses charging and receiving excise taxes are required to file Form 720 Federal Excise Tax Return on a quarterly basis and include quarterly payments.
There are some instances of excise tax exemptions. For example, certain organizations, such as nonprofit hospitals, nonprofit educational organizations, and state and local governments, may be exempt from paying excise taxes for telephone services. Businesses with idling reduction devices on commercial vehicles may be exempt from federal excise tax under the Energy Improvement and Extension Act (EIEA) of 2008. Certain entities, like nonprofit educational organizations and local state governments, may be able to claim credits or refunds for fuel taxes paid on specific types of fuels used for nontaxable purposes.
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Excise tax rates
Excise taxes are imposed on certain goods, services, and activities. These taxes are typically paid by businesses, which then pass the cost onto the consumer by incorporating it into the product's price. However, some excise taxes are paid directly by consumers, such as property taxes and levies on certain retirement account activities. Excise taxes are separate from income taxes, and businesses must file Form 720 Federal Excise Tax Return on a quarterly basis.
Ad valorem excise taxes are charged as a percentage of the value of the product or service. For example, a 10% excise tax on indoor tanning services means that a tanning salon charging $100 for a session must pay the IRS $10 in excise tax. Other ad valorem excise taxes include firearms (10%), airline tickets (7.5%), and heavy trucks (12%). Property taxes also fall under this category.
Specific excise taxes, on the other hand, are a set tax or fee added to a specific product per unit. Examples include gasoline, which is taxed at $0.183 per gallon, and beer, which is taxed at $18.00 per barrel.
The rates for excise taxes on alcoholic beverages vary depending on the type and alcohol content. Distilled spirits are generally taxed at $13.50 per proof gallon, while taxes on wines range from $1.07 per gallon for wines with 16% alcohol or less to $3.40 per gallon for sparkling wines. Lower rates apply for the first 750,000 gallons of wine produced in a year, and reduced tax rates are available for breweries producing less than two million barrels of beer.
The Inflation Reduction Act of 2022 also introduced changes to excise tax rates. It made permanent higher tax rates under Section 4121 of the Internal Revenue Code, which funds the Black Lung Disability Trust Fund. Additionally, it created a new 1% excise tax on the repurchase of corporate stock by certain publicly traded corporations, effective for repurchases after December 31, 2022.
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Excise tax payments
Excise taxes are imposed on certain goods, services, and activities. They are typically paid by businesses, which then incorporate these taxes into the price of their products, passing the cost onto the consumer. Excise taxes are separate from income taxes and other taxes that corporations must pay, such as income taxes. Businesses are required to file Form 720 Federal Excise Tax Return on a quarterly basis and include quarterly payments.
While consumers may not directly pay excise taxes, they are impacted by them through purchases they regularly make. Excise taxes are imposed by federal, state, and local governments, and each excise tax has its own rate, which can be a flat dollar amount or a percentage of the item's price. For example, the federal excise tax on gasoline is a flat rate of 18.3 cents per gallon (as of 2024), while the indoor tanning services excise tax is 10% of the amount paid.
Businesses collecting excise taxes must also pass them on to state and local governments as required. They may be allowed deductions or credits on their annual income tax returns related to excise tax payments. Excise taxes are often levied on goods that have a high social cost, such as cigarettes and alcohol, and are sometimes called "sin taxes".
In the United States, excise taxes are imposed under Subtitle D ("miscellaneous excise taxes") and Subtitle E ("Alcohol, Tobacco, and Certain Other Excise Taxes") of the Internal Revenue Code. Excise taxes fund various projects, such as highway and airport improvements, and the Highway Trust Fund, which is used for road, bridge, and tunnel construction and reconstruction.
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Excise tax forms and filing
Excise taxes are imposed on certain goods, services, and activities. While the consumer doesn't usually see the excise tax on their receipt, it may be charged at the time of purchase and incorporated into the product's price. Excise taxes are separate from income taxes, and businesses must file them independently.
Forms and Filing
The specific excise tax form to be filed depends on the nature of the goods, services, or activities being taxed. Here are some common excise tax forms and their respective filings:
- Form 720: This is the Quarterly Federal Excise Tax Return. It is filed by businesses electronically on a quarterly basis for each quarter of the calendar year. Form 720 can be filed through an IRS-approved software provider, which offers immediate acknowledgement of receipt and faster service. Some Form 720 filers may also need to make semi-monthly deposits in addition to reporting excise tax liability.
- Form 2290: This is the Heavy Highway Vehicle Use Tax Return. It is filed by the person in whose name a highway motor vehicle with a taxable gross weight of 55,000 pounds or more is registered. Form 2290 applies to sport fishing equipment and archery equipment as well. Filing deadlines for this form should be checked, as they vary.
- Form 8849: This form is used to claim a credit or refund relating to certain excise taxes and activities. It is filed by individuals who have purchased sport fishing and archery equipment from outside the United States and are responsible for paying the excise tax.
- Form 7208: This form relates to the 1% excise tax on the repurchase of corporate stock by certain publicly traded corporations, effective for repurchases after December 31, 2022.
It is important to note that the IRS encourages electronic filing for faster processing and reduced errors. Paper excise tax forms, such as Forms 720, 2290, and 8849, are taking longer to process.
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$32.45
Excise tax refunds and credits
Excise taxes are imposed on certain goods, services, and activities. Taxpayers include importers, manufacturers, retailers, and consumers, and they vary depending on the specific tax. Excise taxes are typically paid by businesses but are passed on to consumers in the form of higher prices. Excise taxes can be ad valorem (paid by percentage) or specific (cost charged by unit).
Merchants may be allowed deductions or credits on their annual income tax returns related to excise tax payments. The Inflation Reduction Act of 2022 added a new income tax credit for clean fuel production, available beginning Jan. 1, 2025 (Clean Fuel Production Credit). Internal Revenue Code section 45Z generally allows an income tax credit for the domestic production of clean transportation fuel, which is divided into two broad categories of fuel: sustainable aviation fuel (SAF) and non-SAF transportation fuel.
The Infrastructure Investment and Jobs Act reinstated the excise taxes on certain chemicals and chemical substances, with certain modifications, effective July 1, 2022. The taxes had previously expired in 1995. The Inflation Reduction Act of 2022 created a new 1% excise tax on the repurchase of corporate stock by certain publicly traded corporations or their specified affiliates effective for repurchases after Dec. 31, 2022.
Claims may be filed for credits or refunds relating to certain excise taxes and activities. To claim a credit or refund, complete Form 8849, Claim for Refund of Excise Taxes. This form can be used to claim a refund of excise taxes on certain fuel-related sales. For example, the ultimate purchaser of gasoline, gasohol, aviation gasoline, diesel fuel, kerosene, aviation fuel (other than gasoline), and liquefied gas (LPG) uses Schedule 1 to make a claim for a refund.
Businesses charging and receiving excise taxes are required to file Form 720 Federal Excise Tax Return on a quarterly basis and include quarterly payments. Paper excise tax forms are taking longer to process. This includes Forms 720, 2290, and 8849. However, the IRS encourages electronic filing, which provides faster processing and confirmation of receipt.
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Frequently asked questions
Excise taxes are taxes imposed on certain goods, services, and activities. They are separate from income taxes and are usually imposed by federal, state, and local governments.
Businesses that sell products subject to excise taxes are responsible for paying the tax to the government. They typically incorporate this tax into the price of the product, passing the cost onto the consumer. However, some excise taxes are paid directly by consumers, including property taxes.
Some excise taxes are calculated as a percentage of an item's price, such as the 10% tax on indoor tanning services. Others are a flat amount, like the 18.3 cents per gallon tax on gasoline.
Businesses are required to file Form 720 Federal Excise Tax Return on a quarterly basis and include quarterly payments. Electronic filing is encouraged, and businesses can submit forms online 24 hours a day.
Yes, some items may be exempt from excise taxes. For example, sales to government agencies, nonprofit organizations, or companies that will use the items in manufacturing may be exempt. Additionally, each state or local area controls its own excise taxes, so exemptions may vary.
