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What is Excise Tax and Does It Affect You?

Excise tax is something many people don't know about, or don't understand, and yet most of us pay excise tax every day without realizing it. This area of tax law can be a little confusing and complex, but for most people, there are two main areas of excise tax with which they should be concerned. These two types of excise tax are easy to understand, and only one of them requires any action on your part.

The first type of excise tax that you should know about is the one that affects everyone the most. This excise tax is a tax built into the price of certain products to discourage their use or to pay for expenses related to the product. Things like alcohol, cigarettes, and gasoline fall under this category. Excise taxes on alcohol and cigarettes are used to decrease consumption by increasing the price, and in the case of cigarettes, to pay for anti-smoking campaigns. Excise taxes on gasoline are used to encourage people to conserve gas, carpool more, and use public transportation more, as well as providing money for maintenance and upkeep of roadways.

When you buy these products, the excise tax is already included in the price, so you usually don't even feel like you are being taxed. The difference here is that excise taxes are levied by both the federal government and the state government, which can cause huge differences in the prices of certain products between the states. Smokers in New York who pay upwards of $9.00 or more for a pack of cigarettes would be shocked to walk into a store in South Carolina, where cigarettes average less than $3.00 per pack. State politics has a huge impact on the excise tax you pay on many products.

The second type of excise tax that affects people most often is the excise tax applied to trucks for highway usage and bulk fuel usage. Many truckers own their own trucks and are individually taxed for these things. The IRS has a system in place called the Excise Summary Terminal Activity Reporting System (ExSTARS) which truckers, or trucking companies, are required to comply with to report their taxable fuel usage. Truckers are responsible for several other excise taxes, depending on the state in which they are based and the cargo they carry.

This kind of excise tax is the one that has the most relevance to individuals. Unlike the other excise tax, this tax requires action on the part of the tax payer. Additionally, it can be an expensive and confusing tax, especially for self employed truckers who do not have a corporation behind them handling the paperwork. If this excise tax affects you, you should seek the advice of a financial advisor to make sure you are meeting all of your tax burdens.

There are many other excise taxes that have varying effect on individuals. Airline tickets, some cars, some technological equipment, and even some medications are subject to excise tax. If you take a vacation abroad and come back with goods, those items are subject to excise tax. If you import merchandise professionally, those goods are subject to excise tax.

Excise tax law is constantly changing based on the political climate, and as previously mentioned, varies from state to state. To get a clear handle on how excise tax laws affect you, especially if you work in trucking or the import/export industry, you should consult a tax expert or financial advisor to make sure you paying the correct amount of taxes. Failure to do so could mean hefty fines or the loss of your business.