Sales tax and excise tax are both consumption taxes, but they work differently. Consumers pay sales tax, which is broadly applied to most retail transactions. Excise taxes apply to specific products, such as alcohol, tobacco, and fuel.
Sales and excise taxes are both consumption taxes, but they apply to different purchases.
Sales tax is charged at the state or local level on a wide range of goods and services, while excise tax may be charged by federal, state, or local governments and applies to specific goods or services, such as alcohol, tobacco, and fuel.
Sales tax funds public services like schools, police, and roads and is typically added to the price at checkout.
Excise taxes raise revenue and may also discourage certain purchases or help cover costs associated with the taxed activity. Manufacturers, producers, importers, and retailers often pass excise tax costs along to consumers through the price.
Businesses may be responsible for both sales and excise taxes on the same sale.
This guide explains the differences between these taxes and how sellers can determine when they need to collect or pay them.
The table below shows some of the key differences between sales tax and excise tax.
Sellers may be responsible for both taxes for the same items and transactions and must fulfill their sales tax and excise tax obligations to be in full compliance and avoid audits and penalties.
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Sales tax is a tax on the sale of tangible goods, and in some cases, on the sale of services and digital products. The United States has no federal sales tax. States and localities administer sales tax, typically using the revenue to fund public services.
Merchants collect sales tax from the end user on taxable products at the point of sale.
While the buyer owes the tax, the seller is legally obligated to act as a collection agent when the seller has sufficient physical connections (physical nexus) or economic connections (economic nexus) in the state where the item is being sent.
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon, although Alaska does have local taxes in certain areas.
A small number of other states, including New Mexico and Hawaii, also don't have a traditional sales tax but instead charge a gross receipts or general excise tax (GET).
In the remaining states, sales tax is broadly applied, with the average combined local and state rate at 7.53%, according to the Tax Foundation. In some states, state and local tax rates combine to top 10%.
Excise tax is a tax on the sale of specific goods or services/activities. Federal, state, and local governments impose excise taxes on some products to ensure users pay for the broader societal costs of those items, or to discourage people from purchasing certain items.
For example, excise tax is charged on things like fuel to fund road repairs and on airplane tickets to cover air travel systems. Excise taxes are also charged on alcohol, tobacco, vaping, cannabis, and tanning to discourage behaviors considered unhealthy.
Federal and state excise taxes can apply to the same product at the same time, so a single item may carry two layers of excise tax before sales tax is added.
Excise taxes are commonly structured in two ways: per-unit excise tax and ad valorem excise tax.
A per-unit excise tax is a set amount charged on a specific item or service, regardless of the item's price.
For example, federal excise taxes are 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel, plus a 0.1-cent Leaking Underground Storage Tank fee on both, for a total of 18.4 and 24.4 cents per gallon.
These taxes provide revenue for the Highway Trust Fund. Congress set the per-unit cost by law and last increased it in 1993. The same 18.3 cents is charged on every gallon of gasoline, regardless of how much that gallon of gasoline costs at the time.
An ad valorem excise tax is charged as a percentage of the product's value, not a flat amount. One example is a 7.5% U.S. excise tax charged on the purchase of domestic commercial airline tickets. This revenue funds air traffic control, safety programs, and airport operating costs.
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Governments at all levels often charge excise tax on the same types of products. The table below shows products routinely subject to these taxes and details whether the tax is typically charged at the state or federal level, or both.
Excise tax rules can change over time. For example, Congress has eliminated multiple types of excise taxes, including luxury taxes applied to furs, aircraft, jewelry, and boats. And many excise taxes that remain in place haven't increased with inflation.
In some states, excise taxes also work differently. For example, Hawaii charges a general excise tax, levied on gross receipts (not just retail sales) and charged on all sellers for the privilege of doing business.
The short answer is yes. If you sell a product that carries excise tax, you will usually owe excise tax on the product and sales tax on the sale.
In many situations, multiple levels of government may charge excise taxes.
For example:
The combined total excise tax is $7.86 per pack. And cigarettes are also subject to sales tax in New York.
Companies selling certain items online must also be aware of state sales tax and excise tax requirements in states they are selling into. For example, under the federal Prevent All Cigarette Trafficking (PACT) Act:
Excise tax registration, filing, and remittance are typically handled differently than sales tax registration, filing, and remittance. So, your company must be fully compliant with sales and excise tax requirements.
Following the rules for only one type of tax is insufficient.
There are three questions every company needs to ask to determine which taxes apply to your business:
The stakes are high if you make the wrong decisions, so you can also turn to a partner like Numeral to help you understand and comply with your sales tax obligations. Numeral tracks nexus, registers for you, and remits payment.
Get started or book a demo to learn how we can help you spend less than five minutes per month on sales tax compliance.
If you still need to know more, here are the answers to some frequently asked questions about sales tax vs. excise tax.
Excise tax and sales tax are not the same.
Sales tax is usually itemized separately and charged at the point of sale, while excise tax is charged to importers, manufacturers, or sellers and is built into the price.
The manufacturer, importer, or seller of goods subject to excise tax is usually legally obligated to pay the tax. The tax is not itemized separately for consumers. However, manufacturers or sellers often raise the item's price by the excise tax due, effectively passing the cost along to consumers.
Many products are subject to both sales tax and excise tax. This can include products like vaping devices, alcohol, and firearms. Excise taxes may also be charged on both the federal and state levels for the same product.
Hawaii's General Excise Tax (GET) replaces a sales tax in Hawaii but is not the same thing as a sales tax. Sales tax is paid by the consumer or end user at the point of sale and is usually a percentage of the sale price.
Hawaii's GET is a gross receipts tax levied on businesses for the privilege of doing business in the state.
To determine if your business owes excise tax, you will need to check both state and federal rules. This is critical if your company sells the specific types of goods or services normally subject to excise tax, such as fuel, tobacco, firearms, alcohol, or vaping products.
The IRS and state and local revenue departments can provide information on excise tax obligations.
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The trusted solution for U.S. sales tax, VAT, and GST compliance, used by 3,500+ global businesses.
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