Intermediate Quick Answer
What is the difference between sales tax and excise tax?
⚡ TL;DR
Sales tax is a retail-level percentage collected by sellers on most goods and services. Excise tax is a product-specific tax — per unit or percentage of wholesale price — usually collected by manufacturers or importers and already embedded in the price consumers see. Both can apply to the same product: spirits carry federal excise tax, state excise tax, and state sales tax.
Sales tax is a percentage on the sale price, collected at retail. Excise tax is a product-specific tax usually collected earlier in the supply chain and built into the price consumers pay.
Key takeaways
- Sales tax: percentage of the retail sale price; collected by the seller from the buyer; remitted by the seller to the state; applies broadly to most taxable goods and services
- Excise tax: imposed on specific products; often collected from manufacturers, importers, or distributors (not at the retail point of sale); typically per-unit (per gallon, per pack, per item) or percentage of wholesale price
- Common federal excise taxes: fuel (18.4¢/gallon gasoline), tobacco (cigarettes, cigars), alcohol ($13.50/proof gallon spirits), firearms (10-11% of sale price, Pittman-Robertson Act)
- Common state excise taxes: motor fuel, tobacco products, alcohol, cannabis (in legal states), lottery proceeds, hotel/lodging (in some states), streaming services (a few states frame this as an excise rather than sales tax)
- Both can apply to the same product: a bottle of spirits carries federal alcohol excise tax (built into the price) + state alcohol excise tax (also built in) + state sales tax at retail, three separate taxes on the same transaction
- Ecommerce relevance: most ecommerce sellers deal primarily with sales tax; excise tax matters for sellers of tobacco, cigars, firearms/ammunition, fuel, alcohol, and cannabis, categories where product-specific excise compliance adds a layer beyond sales tax
- Who collects: sales tax = retailer; excise tax = usually manufacturer or importer (federal) or manufacturer/distributor (state); some state excise taxes do require retail collection
Frequently asked questions
What is the difference between sales tax and excise tax?
Sales tax is collected by the retailer at the point of sale as a percentage of the purchase price, remitted to the state. Excise tax is imposed on specific goods, often at the manufacturer, importer, or distributor level rather than at retail, and is typically built into the product price before the consumer sees it. Excise taxes are product-specific, often applied per unit (per gallon, per pack, per firearm) rather than as a percentage of price.
Do customers pay excise tax on top of sales tax?
Often both apply. Excise tax is typically embedded in the product price by the time it reaches retail: the consumer doesn't see it as a separate line item. Sales tax is then applied on top of that price (which already includes the excise tax). A consumer buying gasoline pays the pump price (which includes federal and state fuel excise taxes) plus any applicable state sales tax on the full price.
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