How is an excise tax different from a sales tax?

Excise tax is distinct from sales tax in two respects. For starters, it only applies to specified commodities. Sales taxes are levied on almost everything you buy (with a few exceptions such as unprepared food and clothing), whereas excise taxes are levied on certain items. Luxury goods and products associated with specific health risks, such as cigarettes, alcohol, and tanning salons are the most common examples.

The local government determines the percentage of tax to be applied, and 45 states have such as sales tax. Excise tax on the other hand is a one-time flat fee levied before the purchase price for specific commodities, some of which are imposed by states and others by the federal government.

Excise tax and sales tax are the two main taxes. But many of us don’t know How is an excise tax different from a sales tax. They consider both taxes the same.

Sales tax

The term sales tax means exactly what it says. A tax is imposed on the sale of tangible personal items like a desk or a toothbrush. In most states in the united states, sales tax is a percentage of the transaction price that the seller collects from the customer at the moment of sale. In other words, the buyer is the one who pays the sales tax, while the seller only acts as a collector when it comes to sales tax, the seller’s role is to collect the tax from the buyer and then remit it to the state taxing authorities. Because sales tax is owed on all taxable sales, if a merchant fails to collect sales tax when they should they may be liable for payment.

Excise tax

An excise tax is a statutory tax imposed at the point of sale on specific goods or services such as fuel, tobacco, and alcohol. Excise taxes are domestic taxes levied within a government infrastructure as opposed to international taxes levied over national borders. Motor fuel, airline tickets, cigarettes, and other goods and services are frequently subject to a federal excise tax.

Excise taxes are levied for a variety of reasons:

Excise taxes are a smart way to raise revenue without income or sale taxes which is a politically risky move.

Excise tax revenue is frequently used to sustain the system or procedures that individuals who pay the tax rely on. Excise fees on gasoline for example could be used to fund the upkeep of roads highways and interstate networks. Excise taxes can make consumers less likely to buy particular products. This could be for health or environmental grounds (excise tariffs on smoke or alcohol) ( excise taxes on chemicals and gasoline).

Difference between excise tax and sales tax

  • The first distinction between excise tax and sales tax is that excise is imposed on a specific item or service whereas sales tax is imposed on almost everything you buy. In most circumstances, sales taxes are calculated as a percentage of the total purchase price whereas excise taxes are calculated per unit.
  • Furthermore, you will see the sale tax on your receipt at the time of purchase, whereas excise taxes are passed on to customers indirectly through higher costs.
  • Excise taxes are usually not listed on receipts, so you won’t even realize you paid them ( its known as a hidden tax).
  • Another distinction is that excise taxes can be imposed at the federal state or local level.
  • Sales taxes, on the other hand, are regulated at the state level and vary greatly from one state to the next.
  • Some states have enacted a statewide sales tax, while others allow cities, municipalities, and counties to levy their own.
  • In essence, you pay sales taxes on items like autos, furniture, cleaning services, car repair, movie tickets, and so on that you buy on a daily basis.
  • Except for specific commodities that are exempt from sales taxes, such as groceries and medicine you can expect to pay sales taxes on the majority of your retail transactions.
  • Excise taxes on the other hand are levied on specific products.
  • Excise taxes, unlike sales taxes, are applied on a per-unit basis (or per-unit tax0 rather than a proportion of the purchase price in most circumstances.
  • The excise tax is typically passed on to the consumer, who may or may not be aware that the excise tax is included in the price of the goods they are purchasing.
  • I hope I was able to address your question on the differences between excise taxes and sales taxes.

Conclusion

Excise taxes are levied on specific goods, products, services, or activities, whereas sale taxes are levied on the majority of what you buy and consume. Excise taxes can be assessed as a percentage of the purchase price or per unit, whereas sales taxes are assessed as a percentage of the purchase price. Sales taxes are administrated at the state level, whereas excise taxes might be managed at the federal, state, or local level (who can then allow cities towns and countries to set their own rates). Sales taxes appear directly on your receipt at the point of purchase, whereas excise taxes are passed on to customers indirectly through higher costs.

FAQs

What distinguishes an excise tax from other taxes?

Excise taxes, unlike regular sales, are usually levied per unit rather than as a proportion of the purchase price. Cigarette excise taxes for example are computed in cents per pack. Moreover, the majority of gasoline excise taxes are calculated in cents per gallon.

What is the distinction between sales tax and excise tax?

Excise duty is imposed on products produced, whereas sales tax is imposed on goods sold. The manufacturer is responsible for excise duty, whereas the end-user is responsible for sales tax.

What are the many forms of excise taxes?

  • The following are the several sorts of excise duties:
  • Basic excise duty is a tax imposed under section 3 of the central excises and salt act of 1944.
  • Central excise duty is levied under section 37 of the finance act of 1978.
  • Excise duty education cess: according to section 93 of finance.


Leave a Reply

Request an Appointment

    Call Today 1-866-835-2979

    Chat Now Speak with a live sales agent.
    Chat Now
    Hours: Monday – Friday
    6:00 am – 5:00 pm
    Pacific Time