Excise tax in the United States

This article is about Excise in the United States. For other Excise taxes, see Excise.

U.S. Historical Tariff Collections by Federal Government (All dollar amounts are in millions of U.S. dollars)
Year	Tariff Income	Receipts % Tariff	Federal Receipts	Income Tax	Payroll Tax	Receipts % Excise
1792	$4.4	95.0%	$4.6	$-	$-	4.7%
1795	$5.6	91.6%	$6.1	$-	$-	5.5%
1800	$9.1	83.7%	$10.8	$-	$-	7.5%
1805	$12.9	95.4%	$13.6	$-	$-	0.2%
1810	$8.6	91.5%	$9.4	$-	$-	1.1%
1815	$7.3	46.4%	$15.7	$-	$-	29.7%
1820	$15.0	83.9%	$17.9	$-	$-	0.6%
1825	$20.1	97.9%	$20.5	$-	$-	0.1%
1830	$21.9	88.2%	$24.8	$-	$-	0.0%
1835	$19.4	54.1%	$35.8	$-	$-	0.0%
1840	$12.5	64.2%	$19.5	$-	$-	0.0%
1845	$27.5	91.9%	$30.0	$-	$-	0.0%
1850	$39.7	91.0%	$43.6	$-	$-	0.0%
1855	$53.0	81.2%	$65.4	$-	$-	0.0%
1860	$53.2	94.9%	$56.1	$-	$-	0.0%
1863	$63.0	55.9%	$112.7	$-	$-	0.0%
1864	$102.3	38.7%	$264.6	$-	$-	0.0%
1865	$84.9	25.4%	$333.7	$61.0	$-	63.2%
1870	$194.5	47.3%	$411.3	$37.8	$-	44.7%
1875	$157.2	54.6%	$288.0	$-	$-	38.2%
1880	$184.5	55.3%	$333.5	$-	$-	37.2%
1885	$181.5	56.1%	$323.7	$-	$-	34.7%
1890	$229.7	57.0%	$403.1	$-	$-	35.4%
1900	$233.2	41.1%	$567.2	$-	$-	51.0%
1910	$233.7	34.6%	$675.2	$-	$-	42.8%
1913	$318.8	44.0%	$724.1	$35.0	$-	47.5%
1915	$209.8	30.1%	$697.9	$47.0	$-	59.5%
1916	$213.7	27.3%	$782.5	$121.0	$-	0.0%
1917	$225.9	20.1%	$1,124.3	$373.0	$-	0.0%
1918	$947.0	25.8%	$3,664.6	$2,720.0	$-	0.0%
1920	$886.0	13.2%	$6,694.6	$4,032.0	$-	0.0%
1925	$547.6	14.5%	$3,780.1	$1,697.0	$-	0.0%
1928	$566.0	14.0%	$4,042.3	$2,088.0	$-	13.3%
1930	$587.0	14.1%	$4,177.9	$2,300.0	$-	13.5%
1935	$318.8	8.4%	$3,800.5	$1,100.0	$-	35.9%
1940	$331.0	6.1%	$5,387.1	$2,100.0	$800.0	34.2%
1942	$369.0	2.9%	$12,799.1	$7,900.0	$1,200.0	32.5%
1944	$417.0	0.9%	$44,148.9	$34,400.0	$1,900.0	13.1%
1946	$424.0	0.9%	$46,400.0	$28,000.0	$1,900.0	15.1%
1948	$408.0	0.9%	$47,300.0	$29,000.0	$2,500.0	15.6%
1950	$407.0	0.9%	$43,800.0	$26,200.0	$3,000.0	17.2%
1951	$609.0	1.1%	$56,700.0	$35,700.0	$4,100.0	15.3%
1955	$585.0	0.8%	$71,900.0	$46,400.0	$6,100.0	12.7%
1960	$1,105.0	1.1%	$99,800.0	$62,200.0	$12,200.0	11.7%
1965	$1,442.0	1.2%	$116,800.0	$74,300.0	$22,200.0	12.5%
1970	$2,430.0	1.3%	$192,800.0	$123,200.0	$44,400.0	8.1%
1975	$3,676.0	1.3%	$279,100.0	$163,000.0	$84,500.0	5.9%
1980	$7,174.0	1.4%	$517,100.0	$308,700.0	$157,800.0	4.7%
1985	$12,079.0	1.6%	$734,000.0	$395,900.0	$255,200.0	4.9%
1990	$11,500.0	1.1%	$1,032,000.0	$560,400.0	$380,000.0	3.4%
1995	$19,301.0	1.4%	$1,361,000.0	$747,200.0	$484,500.0	4.2%
2000	$19,914.0	1.0%	$2,025,200.0	$1,211,700.0	$652,900.0	3.4%
2005	$23,379.0	1.1%	$2,153,600.0	$1,205,500.0	$794,100.0	3.4%
2010	$25,298.0	1.2%	$2,162,700.0	$1,090,000.0	$864,800.0	3.1%
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Notes: All dollar amounts are in millions of U.S. dollars Federal expenditures often exceeded Revenue by temporary borrowings. Initially the U.S. Federal Government was financed mainly by customs(tariffs Average excise is calculated by dividing Excise Revenue by Total Revenue. Other taxes collected are: Income Tax, Corporate Income Tax, Inheritance, Tariffs—often called Customs or duties on imports, etc. Income Taxes began in 1913 with the passage of 16th Amendment. Payroll taxes are Social Security and Medicare taxes Payroll Taxes began in 1940. Many Federal government Excise taxes are assigned Trust Funds and are collected for and “dedicated” to a particular Trust.

Excise tax in the United States is a indirect tax on listed items. Excise taxes can and are made by federal, state and local governments and are far from uniform throughout the United States. Excise taxes are collected by the producer or retailer and not paid directly by the consumer and often remain "hidden" in the price of a product or service and are seldom listed separately. This is the reason a lot of politicians like them.

Constitutional law

The U.S. Constitution, ratified in 1789, gave the federal government authority to tax, stating that Congress has the power to

"... lay and collect taxes, duties, imposts and excises, pay the debts and provide for the common defense and general welfare of the United States."

Tariffs between states is prohibited by the U.S. Constitution and all domestically made products can be imported or shipped to another state tax free.In the U.S. constitutional law sense, an excise tax is essentially an event tax (as opposed to a state of being tax).

Historical Background

Federal Excise taxes have a storied background in the United States. Responding to an urgent need for revenue following the American Revolutionary War, after passage of the U.S. Constitution the First United States Congress passed, and President George Washington, signed the Tariff Act of July 4, 1789, which authorized the collection of duties on imported goods. This was considered at the time the main source of federal income. Having just fought a war over taxation (among other things) the U.S. Congress wanted a reliable source of income that was relatively unobtrusive and easy to collect. Tariffs and excise taxes were originally recommended in the U.S. by the first Treasury Secretary, Alexander Hamilton, in 1789 to tax foreign imports to provide the Federal Government with money to pay its operating expenses and to redeem at full value U.S. Federal debts and the debts the states had accumulated during the American Revolutionary War. Hamilton thought it was important to start the U.S. Federal government out on a sound financial basis with good credit. The first Federal budget was about 4.6 million dollars and the population in the 1790 U.S. Census was about four million. Hence the average federal tax was about $1/person per year. Then tradesmen earned about $0.25 a day for a 10-12 hour day so federal taxes could be paid with about four days work.

The Congress set excise taxes on only a few goods, such as, whiskey, rum, tobacco, snuff and refined sugar. There were initially no other significant sources of federal income besides tariffs. The excise tax on whiskey was so despised it led to the Whiskey Rebellion which had to be quelled by Washington calling up the Militia and repressing the rebellious farmers--all were later pardoned. The whiskey excise tax collected so little and was so despised it was abolished by Thomas Jefferson in 1802. In the Napoleonic Wars and the War of 1812 the imports to the United States plummeted and the Congress in 1812 brought back the excise tax on whiskey to compensate for the loss of customs revenue. Within a few years customs duties (tariff) brought in enough federal income to again abolish nearly all federal excise taxes. When the debt was finally paid off by 1834 President Andrew Jackson kept the excise tax zeroed out and reduced the customs duties (tariffs] in half.

Excise taxes stayed essentially zero till the U.S. Civil War brought a need for much more federal revenue. Excuse taxes were reintroduced and Income taxes (later declared unconstitutional) were introduced. By about 1916 the loans taken out during the Civil War were all paid off and the excise taxes were again set very low. Shortly thereafter the 18th Amendment was passed and alcohol production was essentially prohibited. Taxing alcohol products would have produced almost no income.

During the Great Depression (1929-1939) President Franklin Roosevelt and Congress starting reintroducing excise taxes to increase federal income. On December 5, 1933 the 21st Amendment was ratified and alcohol production became legal again. The healthy excise tax on now legal alcoholic beverages paid a significant portion of the taxes during the Great Depression.

The U.S. has expanded the definition of items in the excise tax lists as trusts for highways, airports, vaccines, etc. have been set up. These are financed by excise taxes on fuels, tickets, vaccines etc.

Excise Tax Types

U.S. Excise Collections 2010 by Federal Government (All dollar amounts are in millions of U.S. dollars)
2010 Excise Taxes	Millions	Percent
Alcohol	$9,229.0	13.8%
Tobacco	$17,160.0	25.6%
Telephone	$993.0	1.5%
Transportation fuels	$(11,030.0)	-16.5%
Other	$1,904.0	2.8%
Total	$18,256.0	27.3%
Trust funds:
Transportation	$34,992.0	52.3%
Airport and airway	$10,612.0	15.9%
Black lung disability	$595.0	0.9%
Inland waterway	$74.0	0.1%
Oil spill liability	$476.0	0.7%
Aquatic resources	$580.0	0.9%
Leaking underground storage tank	$169.0	0.3%
Tobacco Assessments	$937.0	1.4%
Vaccine injury compensation	$218.0	0.3%
Total Trusts	$48,653.0	72.7%
Total, Excise Taxes	$66,909.0
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Notes: All dollar amounts are in millions of U.S. dollars Some Excise taxes are assigned to Trust Funds and are collected for and “dedicated” to the Trust.

Excise taxes are generally taxes on events like the purchase of a quantity of a particular item like gasoline, cigarettes, etc. and are usually included in the price of the item--not listed separately like sales taxes. The excise tax is usually imposed on quantities like gallons of fuel, gallons of wine or drinking alcohol, packets of cigarettes, etc. and are usually paid initially by the manufacturer or retailer. All excise taxes are, of course, passed on to the consumer who eventually consumes the product. The price the item is eventually sold for is not generally considered in calculating the excise taxes. Income taxes, value added taxes (VATS), sales taxes, and transfer taxes are all examples of other event taxes but are typically not called excise taxes (in the U.S.) because of the different ways they are assessed. In the U.S. essentially the only taxes called excise taxes are the taxes on quantities of enumerated items (whiskey, wine, tobacco, gasoline, tires, etc.). Other events may be technically be considered excise taxes but are seldom collected under that name. An example of a state of being tax is an ad valorem property tax--which is not an excise. Customs or tariffs are based on the property (usually imported goods) as a state of being or Ad-valorem taxes and are also typically not called excise taxes. Excise taxes collected by the Internal Revenue Service as listed in the Historical Statistics of the United States are all taxes on separable enumerated items.

For purposes of the U.S. Constitution, an excise is essentially any indirect tax, or event tax. An excise means any tax other than (1) a property tax or Ad-valorem tax by reason of its ownership; or (2) a tax per head tax or capitation tax by being present. Thus, an excise is imposed on the taxable event, and not directly on the person or property. A property tax may be imposed on the property or the person who owns that property at a certain moment on (for example) January 1 of each year based on the state of title at that given moment. The "state of title" (state of ownership) — of property by reason of its ownership — is being taxed. The next year, on January 1, another such tax is imposed again in the same way on the same property and person, even though there has been no change in the ownership (no intervening event). The amount of the tax may change from year to year, based on the change in the value of the property or a change in the tax rate, or both, but those are separate issues governing how the tax is computed. What is being taxed, fundamentally, is the state of title—and the state of title is a state of being, not an event. Traditionally the Federal government has left property taxes and sales taxes to the states for their revenue. Tariffs or Customs duties on imported goods are essentially the only property tax imposed by the U.S. Federal government. Tariffs can only be set by the Federal government and not by any state or local jurisdiction. For U.S. constitutional law purposes, a customs duty or tariff is nominally in a separate category from an excise tax. Excise taxes can be (and are) set by other jurisdictions like, towns, states, etc.

In the United States, the term "excise" usually means: (A) any tax other than a property tax or capitation tax or income tax (i.e., a direct tax in the constitutional law sense) Many taxes are simply called an excise tax in the statute imposing that tax (an excise in the statutory law sense) even though they are more "accurately" some other kind of tax. Excise taxes are often on items like: tobacco and alcohol --sometimes referred to as sin taxes.

Statutory law

The term "excise" also has a statutory law meaning. Generally, in the United States any statute that imposes a tax specifically denominated as an "excise" is an excise tax law. U.S. Federal statutory excises are (or have been) imposed under Subtitle D ("miscellaneous excise taxes") and Subtitle E ("Alcohol, Tobacco, and Certain Other Excise Taxes") of the Internal Revenue Code, 26 U.S.C. § 4001 through 26 U.S.C. § 5891, relating to such things as luxury passenger automobiles, heavy trucks and trailers, "gas guzzler" vehicles, tires, petroleum products, coal, vaccines, recreational equipment, firearms (see National Firearms Act), communications services (see Telephone federal excise tax), air transportation, policies issued by foreign insurance companies, wagering, water transportation, removal of hard mineral resources from deep seabeds, chemicals, certain imported substances, non-deductible contributions to certain employer plans, and many other subjects. The Commonwealth of Massachusetts charges what it calls an "excise tax" on all vehicles, even though this is, in fact, an ad valorem tax.

Another example of an excise is a tax or duty levied on the sale or importation of specific goods or a fixed rate tax on the sale or importation of specific goods; in this manner it differs from a general sales tax or value added tax.

Excise duties usually have one of two purposes: to raise revenue or to discourage particular behavior. Taxes such as those on sales of fuel, alcohol and tobacco are often justified on both grounds. Some economists suggest that the optimal revenue raising taxes should be levied on sales of items having an inelastic demand, while behavior altering taxes should be levied where demand is elastic.

One of the most common excises in the United States is the cigarette tax. This tax is simply a fixed fee applied to each pack of cigarettes. Specifically, the federal government uniformly charges $1.01 for a standard pack of 20 cigarettes. On top of the federal tax, all 50 states levy a cigarette tax that ranges from $0.17 per pack in Missouri to $4.35 per pack in New York. Overall, the excise taxes constitute a substantial proportion of the retail cost of cigarettes, but this effect can still be avoided in some jurisdictions if the consumer purchases loose tobacco and cigarette paper separately.

A reason why the governments state that excise taxes should exist is to internalize external costs. For example, the alcohol excise tax could be used to pay for the treatment of alcohol-caused diseases.

Excise taxes can be imposed at the point of production or importation, or at the point of sale. They are usually waived or refunded on goods being exported, so as to encourage exports, though they are often re-imposed by the importing country. Smugglers will seek to obtain items at a point at which they are not taxed and then sell them at price between the pre-tax and post-tax price. They also look to find loopholes, which may exist through importing to different countries, before then exporting to the destination country.

For similar items, excise duties are the same for imported and domestically produced goods; if the tax is different, then there is an explicit or implicit customs duty or tariff.

An unusual example of an excise tax is found in the State of Hawaii. In lieu of a sales tax, the State of Hawaii imposes a General Excise Tax, or GET, on all business activity in the State. The GET is charged at a rate of 4% for most businesses and 0.5% for wholesalers. The tax is imposed on all business entities, so in essence, the tax is collected at every level of production (material supplier to manufacturer to wholesaler to retailer.) The GET is also charged on all business service activity such as real estate agent commissions, lawyer fees and the like. With Hawaii's industry heavily dependent on tourism and tourist spending, the State regularly raises nearly half its government revenues through the imposition of the GET. Hawaii's GET has been criticized for having a disproportionate impact on low-income families, owing to the fact it is charged on intermediary transactions (such as those between wholesaler and retailer) as well as services, resulting in a pyramiding effect as costs rise in relation to final retail prices.

Comparison of differing definitions of "excise" under U.S. law

In the U.S. constitutional law sense, an excise includes gift taxes, estate taxes, payroll taxes, sales taxes, miscellaneous excise taxes, and income taxes on any income other than income from property, etc. -- in short, any tax that is not a direct tax. In the U.S. statutory sense, however, only the Subtitle D and E taxes are denoted as "excises."

Commentary on excises

Samuel Johnson's A Dictionary of the English Language defined excise in 1755 as A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid.

See also

• Her Majesty's Customs and Excise