How is an Excise Tax different from a Sales Tax?

Both excise tax and sales tax are considered part of the excise tax. Both are well-known in the world of business and industry in the U.S.

Their application corresponds to the goods or services acquired under the purchase modality. But it is also known that they are a fundamental part of the net income in the North American country. To learn more about them, but above all, how they differ, pay attention to this article.

What is the excise tax?

This tax is known for its ability to tax certain products, goods, and services. The excise tax we are referring to is collected directly by companies. They are then sent to the corresponding system for their proper use.

But it is usually passed on to the user or consumer through price increases. These consumers are not always aware that they assume the excise tax cost after each purchase.

Why are excise taxes levied?

There are a few reasons why excise taxes are levied in the U.S. These are the most common:

  • These taxes help generate more revenue. Importantly, their application will prevent increases in sales and income taxes.
  • Excise taxes are used to pay for processes or systems that taxpayers mostly use. For example, the money collected will be used to restore roads or avenues.
  • The tax burden on some products will make people prefer not to buy them. It is the case for tobacco, alcohol, gasoline, or chemicals.

How are excise taxes collected?

There are two ways excise taxes are collected in the U.S These are:

  • Per-unit tax: This is also known as a specific excise tax. It involves charging a particular amount for each product, regardless of its base price.
  • Percentage of price: This is known as ad valorem tax. It involves charging a fixed amount of money for the total value of the service or product sold.

What is sales tax?

It is a tax that is well-known to consumers and business owners. Businesses collect it directly from the point of purchase when the consumer purchases a product.

These taxes are routed to the appropriate authorities. Sales taxes are levied in each region of the United States. The amount varies according to each state and its tax rules. All areas, including Washington, DC, use their rates.

It is important to know that most states apply their tax rates. But others leave it to the discretion of their towns and cities to set their taxes.

Differences between excise tax and sales tax

Are excise tax and sales tax the same? We already know they are not the same. But do we know their differences?

Here we tell you what they are to understand a little more about what they are and how each is applied.

  • The excise tax is reflected in products, goods, services, and certain activities. But the sales tax is applied to most of the things that are bought or consumed.
  • The excise tax is charged as a percentage of the price of a specific product or per unit. Now, business owners collect sales tax as a percentage of the value of a product or consumption.
  • Excise taxes can be administered at a federal, local, or state level. Sales taxes are those that can be issued on a state level. Cities, towns, or counties can define their tax rates.
  • Excise taxes are levied indirectly on purchasers or consumers through higher prices of the products they buy. The sales proceeds are reflected right at the point of purchase.
  • An excise tax is applied to very specific products alcohol, tobacco, gasoline, air travel, health insurance, telephone services, gambling, coal, and jet fuel, among others. A sales tax applies to any goods or services you acquire under the purchase modality. Furniture, automobiles, vehicle repair, cleaning services, and movie tickets.

Benefits of paying taxes in the U.S.

Why is it important for merchants to pay taxes in the United States? Here we tell you:

1. You avoid tax problems

Paying the special and sales taxes on time will avoid problems with the corresponding agencies. The probability of a seizure of accounts will be reduced.

2. Greater contribution to society

Paying taxes is a way of contributing to others. The money collected can go to health or education. Also, to the repair of a road artery.

3. Access to government benefits

You may be able to access some U.S. government benefits such as health and education. You may also be able to enroll in programs for the purchase of food.

4. You gain peace of mind

Being up to date with your taxes will give you the confidence and peace of mind that the agencies in charge will not go after you.