Excise Tax in The United States - Statutory Law

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.

Excise duties usually have one or two purposes: to raise revenue and to discourage particular behavior or purchase of particular items. 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. Most items on the excise tax lists are relatively inelastic "addictions" with only long term elasticity.

One of the most common excises in the United States is the cigarette tax imposed by both the states and federal governments. This tax is simply a excise tax applied to each pack of cigarettes. Specifically, the federal government uniformly charges an excise tax of $1.01 for a standard pack of 20 cigarettes. On top of the federal tax, all 50 states levy a different cigarette tax that ranges from $0.17 per pack in Missouri to $4.35 per pack in New York. Overall, the excise taxes constitute most of the retail cost of cigarettes. Cigarette taxes can be avoided in some jurisdictions if the consumer purchases loose tobacco and cigarette paper separately or by purchase of cigarettes from lower taxed states.

Excise taxes can be imposed and collected at the point of production or importation, or at the point of sale and then remitted to the Internal Revenue Service or state or local taxing agency. Often some excise taxes are collected by the federal government and then remitted to the states on a partially matching basis to pay for particular items like interstate highway construction, airport construction or bridge repairs. Excise taxes are usually waived or refunded on goods being exported, so as to encourage exports. Smugglers and other tax avoiders will often seek to obtain items at a point at which they are not taxed or taxed much lower and then later sell or use them at a price lower than the post-tax price in their jurisdiction.

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 a state "excise" tax is found in the State of Hawaii. In lieu of a sales tax, the State of Hawaii imposes a tax called 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. A more accurate tax term would be a value added tax or VAT.

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 because 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.