An excise tax is different from a sales tax in three clear ways: what it targets, how it is calculated, and who sends the money to the government. An excise tax applies only to specific goods and services, such as gasoline, cigarettes, alcohol, and airline tickets. A sales tax applies broadly to most retail purchases in a state. Excise tax is usually charged as a flat amount per unit and is baked into the shelf price before you ever reach the register. Sales tax is a percentage of the purchase price, and it appears as a separate line on your receipt.
That difference matters most to business owners. If you sell taxable goods at retail, you register with your state, collect sales tax from the buyer, and file a state return. If you manufacture, import, or sell products on the federal excise list, you owe the tax yourself and report it quarterly on IRS Form 720. The two obligations are separate. Meeting one does not satisfy the other, and many businesses owe both.
Excise Tax vs Sales Tax
| Feature | Excise Tax | Sales Tax |
|---|---|---|
| Scope | Specific goods and services only | Most retail goods and some services |
| Calculation | Flat rate per unit, or a percentage of the producer price | Percentage of the retail sale price |
| Visibility | Hidden inside the product price | Shown separately at checkout |
| Legally owed by | Manufacturer, importer, or retailer | Consumer, collected by the seller |
| Level of government | Federal and state | State and local |
| Main purpose | Fund targeted programs and discourage certain consumption | Fund general state and local budgets |
| Federal filing | IRS Form 720, filed quarterly | None. States administer sales tax |
What Is an Excise Tax?
An excise tax is a selective consumption tax on a narrow list of products, services, and activities. Economists call it an indirect tax because the business pays it first and then builds the cost into the price. The buyer carries the burden without seeing a line item.
The federal government uses excise taxes for two reasons. The first is targeted funding. Fuel excise taxes flow into the Highway Trust Fund and pay for roads and bridges. The second is behavior. Higher prices on tobacco and alcohol reduce consumption, which is why people call these levies sin taxes.
Specific and Ad Valorem Excise Taxes
Excise taxes come in two forms, and the difference changes your math.
- Specific excise tax. A fixed dollar amount per unit. Federal gasoline tax is $0.184 per gallon in 2026. Diesel and kerosene run $0.244 per gallon. The rate stays the same whether fuel costs $3 or $5.
- Ad valorem excise tax. A percentage of the sale price. Large cigars are taxed at 52.75% of the manufacturer’s price, capped at 40.26 cents per cigar. Domestic air travel carries a 7.5% ticket tax.
What Is a Sales Tax?
A sales tax is a broad consumption tax on retail transactions. The state sets a base rate, and counties and cities often add their own. Combined rates in some jurisdictions pass 10%.
The buyer legally owes the tax. The seller acts as a collection agent, holds the money in trust, and remits it to the state on a monthly or quarterly schedule. Forty-five states plus the District of Columbia charge a statewide sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon do not, though Alaska allows local sales tax.
Sales tax obligations follow nexus. After the Supreme Court ruling in South Dakota v. Wayfair, a business can trigger a filing duty in a state through sales volume alone, with no office or warehouse there.
Can You Pay Both Taxes on the Same Purchase?
Yes, and this is where most explanations stop short. Excise tax and sales tax stack, and the sales tax is usually calculated on a price that already includes the excise tax.
Take a pack of cigarettes bought in New Jersey. The federal excise tax adds $1.01 per pack of 20. New Jersey adds a state cigarette excise tax of $2.70 per pack. Both amounts sit inside the shelf price. New Jersey then applies its 6.625% sales tax to that full shelf price, including the $3.71 of excise tax already embedded in it. The buyer pays tax on top of tax.
Airline tickets work the same way. On a $240 domestic fare with one stopover, the federal excise charge is $28.60. That is the 7.5% ticket tax plus $5.30 for each of the two flight segments.
Fuel is the exception worth knowing. Most states exempt gasoline from sales tax because motor fuel already carries heavy federal and state excise taxes.
Who Files Which Tax
Federal Excise Tax and IRS Form 720
Businesses report most federal excise taxes on Form 720, the Quarterly Federal Excise Tax Return. Due dates are April 30, July 31, October 31, and January 31.
If your net liability for Part I taxes tops $2,500 in a quarter, you must also make semimonthly deposits through EFTPS. Deposits are due by the 14th day after each semimonthly period. Part II items, including the PCORI fee, are paid with the return instead.
Alcohol and tobacco follow a separate track. The Alcohol and Tobacco Tax and Trade Bureau collects those taxes, and producers need a TTB permit and a bond before they operate.
State Sales Tax
Sales tax never touches Form 720. You register for a seller’s permit in each state where you have nexus, collect at the correct local rate, and file with that state’s revenue department. Rates change often, and rules on what counts as taxable vary widely by state.
2026 Excise Tax Changes to Watch
Several federal excise rules shifted this year, and missing them creates penalty exposure.
- Remittance transfer excise tax. The One Big Beautiful Bill Act created a 1% tax on certain money transfers made after December 31, 2025. It is reported as IRS No. 155. The IRS granted limited deposit penalty relief for the first three quarters of 2026.
- PCORI fee. The rate is $3.84 per covered life for the current filing period.
- Air transportation. The domestic segment fee rose to $5.30. The international facility fee is $23.40, or $11.70 for Alaska and Hawaii.
- Expired taxes. Oil spill liability taxes, IRS Nos. 18 and 21, ended after December 31, 2025.
Is Excise Tax Deductible? Is Sales Tax?
For a business, federal and state excise taxes paid on goods you produce or sell are generally deductible as an ordinary business expense. They are a real cost of doing business.
Sales tax you collect from customers is different. It is never your income and never your deduction. You hold it as a liability until you remit it. Sales tax you pay on business supplies is deductible, usually as part of the cost of the item.
Individuals who itemize may deduct state and local sales tax under the SALT rules, in place of deducting state income tax. Excise taxes on personal purchases, such as the tax inside a gallon of gas, are not deductible.
Common Excise Taxes in the United States
- Gasoline, diesel, and aviation fuel
- Cigarettes, cigars, and other tobacco products
- Beer, wine, and distilled spirits
- Airline tickets and cargo transport
- Indoor tanning services
- Heavy trucks, trailers, and highway use
- Firearms and ammunition
- Gas guzzler vehicles
- Certain health insurance and self-insured plans, through the PCORI fee
Frequently Asked Questions
Is excise tax the same as sales tax?
No. Excise tax hits a short list of specific products and is usually a flat amount per unit built into the price. Sales tax hits most retail purchases and is a percentage added at checkout.
Who pays excise tax, the buyer or the seller?
The manufacturer, importer, or retailer is legally responsible and files the return. The cost is passed to the buyer through a higher price, so the consumer ultimately bears it.
Do I pay sales tax on top of excise tax?
Usually yes. Sales tax is calculated on the retail price, which already contains the excise tax. Motor fuel is the common exception, since most states exempt it from sales tax.
Which form is used to report federal excise tax?
IRS Form 720, the Quarterly Federal Excise Tax Return. It is due April 30, July 31, October 31, and January 31.
Do all states charge sales tax?
No. Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax. Alaska still permits local jurisdictions to impose one.
Is excise tax a direct or indirect tax?
It is an indirect tax. The business remits it to the government, and the economic burden shifts to the consumer through pricing.
Get Your Excise and Sales Tax Filings Right With Tax USA
Excise tax and sales tax follow different rules, different deadlines, and different agencies. A missed Form 720 deposit or an unregistered sales tax nexus can cost far more than the tax itself. Tax USA helps business owners sort out which taxes apply, register correctly, and file on time. Our team handles business filing, bookkeeping, year-end tax planning, and tax resolution for clients across the country. Call Tax USA at 866-529-5558 or schedule an appointment today, and let us simplify your tax obligations.