What‘s The Difference Between Sales Tax and Excise Tax?

Sales tax and excise tax are two types of taxes imposed on goods and services in various countries around the world. 

Sales tax is a tax that is added to the cost of goods or services at the point of sale. It is usually calculated as a percentage of the total sale price and varies from state to state. The purpose of sales tax is to generate revenue for the government and is typically used to fund public services such as schools, roads, and public safety.

And excise tax is a tax that is levied on specific goods such as alcohol, tobacco, and gasoline. It is also known as a "sin tax" because these goods are considered harmful to individuals and society. Excise tax is usually included in the price of the product and is collected by the manufacturer or distributor.

One of the key differences between sales tax and excise tax is the way they are calculated and collected. Sales tax is added to the total cost of goods or services, while excise tax is included in the price of specific products. Additionally, sales tax is collected by the retailer at the point of sale, while excise tax is typically collected by the manufacturer or distributor.

Difference Between Sales Tax and Excise Tax

Point of Difference	Sales Tax	Excise Tax
Definition	A tax on the sale of goods and services	A tax on the production or sale of a particular good or service
Who Pays	Consumers pay the tax when they purchase a taxable item	Manufacturers or producers pay the tax and may pass the cost onto consumers in the form of higher prices
Rate	The rate varies by state and product, typically between 4-8%	The rate is typically a fixed amount per unit of the good or service
Collection	Collected by the seller and remitted to the state government	Collected by the manufacturer or producer and remitted to the federal government
Revenue Use	Used to fund state and local government services and programs	May be used to fund specific programs or industries, or for general revenue
Goods and Services	Applied to a wide variety of goods and services	Applied to specific goods and services, such as tobacco, alcohol, gasoline, and firearms
Example	A 6% sales tax on a $10 item would be $0.60	A $1 excise tax on a gallon of gasoline
Policy Goals	Generate revenue for state and local governments	May be used to discourage consumption of certain goods, or to fund specific programs or industries
Administration	Administered by state and local governments	Administered by the federal government
Enforcement	Enforced by state and local tax authorities	Enforced by federal tax authorities