The core difference: what gets taxed and who pays
A sales tax is a percentage added to the price of almost any item you buy at a store — groceries, clothes, furniture, gas. It applies broadly to most goods and services. An excise tax is a tax on specific products only: gasoline, cigarettes, alcohol, tires, fishing equipment, or airline tickets. The excise tax is built into the price you see on the shelf or pump, while sales tax is usually added at checkout.
Both taxes ultimately come out of your pocket, but they work through different systems. When you buy a pack of cigarettes, the federal excise tax on tobacco is already included in what the cashier rings up. When you buy a shirt, the sales tax is calculated and added to your total. The shirt itself has no excise tax because it is not a targeted product.
The person or business that collects the tax is also different. A retailer collects sales tax from you and sends it to the state. A manufacturer or distributor collects excise tax and sends it to the federal government (or state, depending on the tax). You may never see the excise tax collector's name because the tax is hidden in the wholesale price before it reaches the store.
Key Takeaways
- Sales tax applies to most items you buy and is added at checkout; excise tax applies only to specific products and is built into the price before you see it.
- Sales tax is collected by retailers and sent to states; excise tax is collected by manufacturers or distributors and sent to federal or state governments.
- Excise taxes are often used to discourage consumption of certain products like cigarettes and alcohol, while sales tax is primarily a revenue tool.
- The same item can be subject to both sales tax and excise tax — for example, a bottle of beer pays excise tax on the alcohol and sales tax on the total purchase.
Why the government uses excise taxes instead of sales tax
Excise taxes serve a purpose beyond simply raising money. They are often used to discourage people from buying certain products — cigarettes, alcohol, and gasoline are the most common examples. By making these items more expensive, the government hopes fewer people will buy them. This is sometimes called a "sin tax" or a tax meant to change behavior.
Sales tax, by contrast, is neutral. It does not try to discourage you from buying a shirt or a book. It is simply a way for states to collect revenue from purchases. The tax rate is the same whether you are buying milk or a television.
Excise taxes can also be used to fund specific programs. The federal excise tax on gasoline, for example, goes into the Highway Trust Fund, which pays for road maintenance and construction. The excise tax on fishing equipment funds conservation programs. This creates a direct link between the tax and what it pays for.
How much excise tax you actually pay
Excise tax rates vary widely by product and by state. Federal excise tax on gasoline is 18.4 cents per gallon — a flat amount, not a percentage. Federal excise tax on cigarettes is $1.01 per pack. Alcohol excise taxes depend on the type: beer, wine, and spirits each have different rates.
Some states add their own excise taxes on top of the federal ones. A gallon of gasoline might include 18.4 cents in federal excise tax plus your state's excise tax, which could be anywhere from 7 cents to 52 cents per gallon depending on where you live. A pack of cigarettes might include $1.01 in federal tax plus your state's tax, which ranges from 17 cents to $4.50 per pack.
Sales tax rates are also set by state and sometimes by county. They typically range from 4 percent to 10 percent of the purchase price. Unlike excise tax, which is a fixed amount per unit, sales tax is a percentage, so it changes based on what you spend.
When you pay both taxes on the same purchase
Many products are subject to both excise tax and sales tax. When you buy a six-pack of beer, the beer itself is subject to federal excise tax (and possibly state excise tax). Then sales tax is added to the total price, including the excise tax already built in. You pay tax on top of tax.
The same happens with gasoline. The price at the pump includes federal and state excise taxes. Then, in some states, sales tax is added on top. A gallon of gas that costs $3.00 might include 50 cents in combined excise taxes, and then 8 percent sales tax is calculated on the full $3.00, not just the base price.
This layering is one reason excise taxes are controversial. People who buy heavily taxed products end up paying more in total tax than someone who avoids those products entirely, even if they spend the same amount of money overall.
Who decides the tax rate and when it changes
Congress sets federal excise tax rates, and they change infrequently. The federal gasoline excise tax has been 18.4 cents per gallon since 1993 — it has not increased in over 30 years, even as inflation has reduced its purchasing power. The federal cigarette tax was last raised in 2009. These rates are written into law and require an act of Congress to change.
State excise taxes are set by state legislatures and change more often. Some states raise cigarette or alcohol taxes every few years; others have not changed them in decades. A few states have no excise tax on certain products at all.
Sales tax rates are also set by state and local governments and can change annually or more frequently. Unlike excise taxes, which are usually fixed per unit, sales tax rates are adjusted as a percentage and can vary by county or even by city.
Excise tax versus sales tax: which one costs you more
For most purchases, sales tax costs more than excise tax because it applies to almost everything. If you spend $100 on groceries and clothing, you might pay $8 in sales tax at a 8 percent rate. If you buy a pack of cigarettes for $7, you might pay $1.50 in combined federal and state excise tax — a much higher percentage of the purchase price.
Excise taxes hit hardest if you regularly buy heavily taxed products. Someone who buys a pack of cigarettes a day pays far more in excise tax over a year than someone who never smokes. Someone who drives a long commute pays more in gasoline excise tax than someone who takes public transit. This is intentional — excise taxes are designed to make certain behaviors more expensive.
For the average person, sales tax is the larger tax burden simply because it applies to nearly every purchase. But for people who consume heavily taxed products, excise tax can be the bigger cost.
Frequently Asked Questions
Is excise tax included in the price I see, or added at checkout?
Excise tax is included in the price you see. When you look at the price tag on a pack of cigarettes or the price per gallon at a gas pump, the excise tax is already built in. Sales tax is usually added at checkout. This is why the total you pay at the register is often higher than the price tag.
Can a state have an excise tax that is different from the federal excise tax?
Yes. States can add their own excise taxes on top of federal ones. For example, the federal excise tax on gasoline is 18.4 cents per gallon, but your state might add another 20 cents per gallon. Both taxes apply to the same gallon of gas. Some states have no state excise tax on certain products, so you pay only the federal tax.
Why does the government use excise tax instead of just raising sales tax?
Excise tax targets specific products and is meant to discourage their use, while sales tax is broad and neutral. Excise tax also creates a direct link between the tax and what it funds — gasoline tax funds roads, for example. Sales tax is a general revenue tool. Using both allows the government to raise money broadly and also discourage specific behaviors.
Do all states have the same excise tax rates?
No. Federal excise tax rates are the same everywhere, but state excise tax rates vary widely. Cigarette excise tax ranges from 17 cents to $4.50 per pack depending on the state. Gasoline excise tax ranges from 7 cents to 52 cents per gallon. Some states have no state excise tax on certain products.
If I buy something with both excise tax and sales tax, which one do I pay first?
Excise tax is built into the price first, then sales tax is calculated on the total price including the excise tax. You do not pay one before the other — they are both part of what you owe. The order does not matter to you as a buyer, only to the government agencies that collect them.