How Excise Tax Works

Learn how excise tax works and how it's different from sales tax.


Hi.  Welcome to Will's Whiteboard.  I'm Will.  Today we are going to explain excise tax, what it is and how it's different from sales tax.  Let's say you're on a trip.  You stop at a convenience store, you fill up on gas, and you buy a map.  On an item like a map, you'll often be charged sales tax.  Sales tax is a transactional tax where you're charge a percentage of the price of the item.  On something like fuel, gas however, you will be charged an excise tax.  An  excise tax is a transactional tax where you're charged by the unit, say 50 cents per gallon of fuel.

Now the sales tax is often reflected down here in the tax line whereas an excise tax is often just baked into this price here.  There's a lot of complexity that goes into handling each of these types of transactional taxes, which have their differences.  There are a lot of different types of excise tax.  For example, alcohol, taxes on alcohol, taxes on cigarettes and taxes on different types of fuel.  If your business manages any type of excise tax, you've got to have tax software that accounts for the uniqueness of excise tax and its complexity.  If you manage both sales taxes and excise taxes, again, your software needs to be able to handle the complexities of both.

Thanks very much.  I'll see you next time.