An excise tax is a tax on the sale of a specific product, not on income or property
An excise tax is a per-unit or percentage tax added to the price of certain goods when you buy them. Unlike income tax (which is based on what you earn) or sales tax (which applies to most purchases), excise taxes target specific items the government wants to discourage or regulate. The tax is built into the price you pay at checkout — you often do not see it listed separately.
The federal government and most states use excise taxes on fuel, alcohol, tobacco, and certain other products. Some cities and counties add their own excise taxes on top. The money collected goes to general government revenue, or in some cases to funds that support related programs — for example, fuel excise taxes sometimes fund road maintenance.
Excise taxes differ from sales tax in a crucial way: sales tax applies to almost everything you buy, while excise tax applies only to items the government has decided to tax. A gallon of gasoline has an excise tax; a gallon of milk does not.
Key Takeaways
- Excise taxes are built into the price of specific products like gasoline, cigarettes, alcohol, and airline tickets — you pay them at the register without a separate line item.
- Federal excise tax rates vary by product: gasoline is taxed at 18.4 cents per gallon, while cigarettes face a $1.01 per-pack federal tax, and states add their own rates on top.
- Excise taxes are designed partly to discourage consumption of products the government considers harmful and partly to raise revenue for related programs.
- The total excise tax you pay depends on where you live, because state and local rates stack on top of federal rates.
Common products that have federal excise taxes
Gasoline and diesel fuel carry a federal excise tax of 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel. This rate has not changed since 1993. Most states add their own fuel excise tax on top — rates range from about 8 cents to over 50 cents per gallon depending on the state.
Cigarettes and smokeless tobacco face a federal excise tax of $1.01 per pack of 20 cigarettes. States typically add their own cigarette tax, which ranges from under 20 cents to over $4 per pack. Cigars and pipe tobacco have lower federal rates but are still taxed.
Alcoholic beverages — beer, wine, and spirits — all carry federal excise taxes. The rate depends on the type and alcohol content. Beer is taxed at $11 per barrel (about 5 cents per 12-ounce can), wine varies by type, and spirits are taxed at $13.50 per proof gallon. States and some cities add their own alcohol taxes.
Other products with federal excise taxes include airline tickets (7.5 percent), fishing equipment and ammunition, certain vehicles, and indoor tanning services. Some states and cities have added excise taxes to items like sugary drinks, vaping products, and cannabis.
How excise tax rates work and where the money goes
Federal excise taxes are set by Congress and apply nationwide, but the rate varies by product type. Some are per-unit taxes (a fixed amount per gallon or pack), while others are percentage-based (a percentage of the sale price). State and local excise taxes stack on top of the federal rate, so the total tax you pay depends on where you live and what you buy.
Revenue from federal excise taxes goes into the general Treasury or into dedicated funds. Fuel excise taxes, for example, fund the Highway Trust Fund, which pays for road construction and maintenance. Tobacco taxes sometimes fund public health programs. Alcohol taxes contribute to general revenue.
State and local excise tax revenue typically goes to the state or city general fund, though some jurisdictions dedicate it to specific purposes — for example, a city might use revenue from a sugary drink tax to fund nutrition programs or dental health initiatives.
Why governments use excise taxes instead of other taxes
Excise taxes serve two purposes: raising revenue and discouraging consumption of products the government considers harmful or wants to regulate. Tobacco and alcohol taxes are explicitly designed to reduce use, especially among young people, by making the products more expensive. Fuel taxes fund transportation infrastructure while also encouraging fuel efficiency.
Excise taxes are also politically easier to pass than broad income or sales tax increases, because they affect only people who buy specific products. A voter who does not smoke or drink may support a tobacco or alcohol tax even if they would oppose a general sales tax increase.
From a practical standpoint, excise taxes are relatively simple to collect because they are built into the supply chain — manufacturers and distributors pay the tax, which gets passed to consumers through higher prices. The government does not have to track individual purchases the way it does with income tax.
How much excise tax you actually pay
The total excise tax on any purchase depends on the product, the quantity, and where you live. A gallon of gasoline in a state with a 30-cent excise tax costs 48.4 cents more in federal and state excise tax alone (18.4 federal plus 30 state). A pack of cigarettes in a state with a $2 excise tax costs $3.01 in federal and state excise tax combined.
Because excise taxes are built into the price, you may not notice them. A gas pump shows you the total price per gallon, not the breakdown of base price plus excise tax. A liquor store receipt shows the final price, not the tax component. This is different from sales tax, which often appears as a separate line on your receipt.
Over time, excise taxes add up significantly. A person who buys a pack of cigarettes daily pays roughly $1,100 per year in federal and state excise tax alone (depending on state rates). Someone who drives 12,000 miles per year in a vehicle that gets 25 miles per gallon pays roughly $265 per year in federal fuel excise tax, plus state fuel tax.
Excise taxes on newer products and services
Some states and cities have introduced excise taxes on products that did not exist when traditional excise taxes were created. Several states tax vaping products and e-cigarettes at rates similar to cigarettes. Some cities have added excise taxes on sugary drinks — Philadelphia's tax is 1.5 cents per ounce, which adds roughly 18 cents to a 12-ounce can.
Cannabis excise taxes exist in states where cannabis is legal. Federal law does not allow a federal excise tax on cannabis, but states typically impose taxes ranging from 10 to 45 percent of the sale price, depending on the state and product type. These taxes are in addition to regular sales tax.
Indoor tanning services face a 10 percent federal excise tax. Some states have considered or passed excise taxes on plastic bags, single-use plastics, or other environmentally targeted items, though these are less common than traditional excise taxes.
Frequently Asked Questions
Is excise tax the same as sales tax?
No. Sales tax applies to most purchases and is a percentage of the sale price. Excise tax applies only to specific products and can be per-unit (a fixed amount per gallon or pack) or percentage-based. Excise tax is typically built into the price you see, while sales tax is often added at checkout.
Why is excise tax not shown separately on my receipt?
Excise tax is collected upstream in the supply chain — manufacturers and distributors pay it, then pass the cost to retailers, who include it in the shelf price. By the time you buy the product, the excise tax is already part of the total price. Sales tax, by contrast, is calculated and added at the register.
Can I deduct excise taxes on my personal income tax return?
Generally no. Excise taxes on personal purchases like gasoline or cigarettes are not deductible. However, if you are self-employed or run a business, excise taxes on fuel or equipment used for business purposes may be deductible as a business expense — consult a tax professional about your specific situation.
Do all states have the same excise tax rates?
No. Federal excise tax rates are the same nationwide, but every state sets its own excise tax rates on top of the federal rate. Some cities and counties add additional local excise taxes. This is why a gallon of gas or a pack of cigarettes costs different amounts in different states.
What happens if a product's excise tax rate changes?
When Congress or a state legislature changes an excise tax rate, the new rate applies to future purchases. Existing inventory at stores is usually sold at the old price unless the retailer chooses to adjust prices. Rate changes are typically announced in advance, giving businesses time to prepare.