excise tax

noun
Updated on: 26 Jul 2017

Definition of excise tax

  1. :  a tax on certain things that are made, sold, or used within a country :  excise

Word by Word Definitions

exciseplay
  1. :  an internal tax levied on the manufacture, sale, or consumption of a commodity

    :  any of various taxes on privileges often assessed in the form of a license or fee

  1. :  to impose an excise on

  1. :  to remove by or as if by excision

  1. :  a charge usually of money imposed by authority on persons or property for public purposes

    :  a sum levied on members of an organization to defray expenses

    :  a heavy demand

  1. :  to levy a tax on

    :  to make onerous and rigorous demands on

    :  charge, accuse


Financial Definition of EXCISE TAX

excise tax

What It Is

Excise tax refers to an indirect type of taxation imposed on the manufacture, sale or use of certain types of goods and products.

How It Works

Excise taxes are commonly included in the price of a product, such as cigarettes or alcohol, as well as in the price of an activity,often gambling. Excise taxes may be imposed by both Federal and state authorities.

Excise taxes usually fall into one of two types:

Ad Valorem; meaning that a fixed percentage is charged on a particular good or product. This administration of the tax is less common.
Specific; meaning that a fixed currency amount may be imposed depending on the quantity of the goods or products that are purchased. Specific is the most common type.

For example, a bottle of wine that normally costs $10 may have a specific excise tax of $2 imposed on it. As per the intent of the excise tax, the additional cost of the wine is passed onto the consumer, making the retail cost of the bottle $12. While this seemingly does not affect the maker of the wine, who's still gains $10 in revenue, an increase in price does reduce quantity demanded, which would indeed affect his balance sheet.

[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]

Why It Matters

The implementation of excise taxes allow Federal and state governments the means to raise additional revenue necessary for large projects such as social programs.

Excise taxes are most often levied upon cigarettes, alcohol, gasoline and gambling. These are often considered superfluous or unnecessary goods and services. To raise taxes on them is to raise their price and to reduce the amount they are used. In this context, excise taxes are sometimes known as "sin taxes."

[InvestingAnswers Feature: How to Avoid an IRS Audit]


Law Dictionary

excise tax

noun

Legal Definition of excise tax

  1. :  excise


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