An excise tax is a tax on a specific product, service, or activity rather than a broad tax on retail purchases generally. The federal government uses it to target things like gasoline, cigarettes, alcohol, airline tickets, and firearms. In most cases the manufacturer, importer, or service provider pays the tax and passes the cost through in the shelf price, so you’re paying it without seeing a separate line on your receipt.
How Excise Taxes Are Structured
There are two basic forms. A specific excise tax is a fixed dollar amount per unit, like cents per gallon of fuel or dollars per pack of cigarettes. What you owe scales with quantity, not price, and the rate stays flat until Congress changes it. An ad valorem excise tax is a percentage of the price, like the 7.5% federal tax on a domestic airline ticket. Ad valorem rates rise and fall automatically with prices; specific rates erode in real terms over time.
Governments impose these taxes for two broad reasons. One is as a user fee: the federal gas tax funds the Highway Trust Fund, so the drivers using the roads pay for the roads. The other is deterrence, sometimes called a sin tax, meant to make harmful products more expensive. Federal taxes on cigarettes and alcohol sit in that category, as does the 10% tax on indoor tanning. Revenue from excise taxes is often earmarked for a dedicated trust fund rather than pooled into general revenue.
The Federal Excise Taxes You’re Likely to Encounter
Motor Fuels
Gasoline is taxed at 18.4 cents per gallon and diesel at 24.4 cents per gallon. Those rates have not changed since 1993 and are not indexed for inflation.1Congressional Budget Office. Increase Excise Taxes on Motor Fuels and Index Them for Inflation Nearly all of the revenue funds the Highway Trust Fund, which pays for federal road construction, maintenance, and mass transit.2Federal Highway Administration. Federal Highway-User Taxes, As of 2024 A sliver of 0.1 cent per gallon goes to the Leaking Underground Storage Tank Trust Fund. Every state layers its own gas tax on top.
Tobacco and Alcohol
The federal cigarette tax is $1.01 per pack of 20, and the base federal tax on distilled spirits is $13.50 per proof gallon.3TTB: Alcohol and Tobacco Tax and Trade Bureau. Tax Rates Beer, wine, and other tobacco products carry their own separate rate schedules. States add their own excise taxes on top, and those rates vary widely.
Air Travel
A domestic airline ticket carries a 7.5% ad valorem tax that funds the Airport and Airway Trust Fund. Each domestic flight segment (one takeoff and one landing) also carries a per-segment fee, which starts at a $3.00 statutory base and is adjusted for inflation each year.4Office of the Law Revision Counsel. 26 USC 4261 – Imposition of Tax International departures and arrivals carry a separate per-person fee with a $12.00 statutory base, also indexed annually; for 2026, the indexed international fee is approximately $23.40 per person. A connecting itinerary with two segments pays two segment fees, which is why nonstops can look cheaper than expected once taxes are added.
Firearms and Ammunition
Firearms and ammunition are taxed at the manufacturer or importer level. Pistols and revolvers are taxed at 10% of the wholesale price; other firearms and all shells and cartridges are taxed at 11%.5Office of the Law Revision Counsel. 26 USC 4181 – Imposition of Tax The revenue flows to wildlife conservation programs under the Pittman-Robertson Act, so hunters and sport shooters fund habitat and wildlife management.
Indoor Tanning
Indoor tanning services carry a 10% excise tax on the amount paid for the service.6Office of the Law Revision Counsel. 26 USC 5000B – Imposition of Tax on Indoor Tanning Services Unlike most excise taxes, this one is collected from the customer at the point of sale by the salon. It was enacted as part of the Affordable Care Act.
Heavy Highway Vehicles
Trucks with a registered gross weight of 55,000 pounds or more owe an annual Heavy Vehicle Use Tax. Vehicles between 55,000 and 75,000 pounds pay $100 plus $22 for every 1,000 pounds over 55,000, and vehicles above 75,000 pounds pay a flat $550 per year.7Federal Highway Administration. Heavy Vehicle Use Tax The logic is user-fee: heavy trucks cause disproportionate road wear, so they pay more for it.
How an Excise Tax Differs from a Sales Tax
The core difference is scope. A sales tax applies broadly to retail purchases with limited exemptions. An excise tax targets a specific product or activity and ignores everything else. Sales taxes are broad revenue tools; excise taxes are targeted instruments, often tied to a policy goal or a trust fund.
The collection point creates a practical difference for consumers. Sales tax is added at the register and itemized on your receipt. Excise taxes are usually collected further up the chain, from the manufacturer, importer, or wholesaler, and embedded in the shelf price. By the time you buy a gallon of gasoline, the 18.4-cent federal excise tax is already inside the posted price, so you pay it without seeing it.
There’s also a jurisdictional difference worth knowing. Sales taxes are exclusively state and local; there is no federal sales tax. Excise taxes exist at both the federal and state level. Buy a pack of cigarettes and you may be paying a federal excise tax, a state excise tax, and a state or local sales tax all at once.
Who Files and Pays
Individual consumers don’t file anything for excise taxes; the cost reaches you through the price of what you’re buying. Businesses that owe federal excise taxes report and pay them on Form 720, the Quarterly Federal Excise Tax Return, filed four times a year.8Internal Revenue Service. About Form 720, Quarterly Federal Excise Tax Return Most businesses with meaningful excise liability also have to make semimonthly deposits by electronic funds transfer rather than waiting for the quarterly return. Businesses whose quarterly liability stays at $2,500 or below can skip deposits and pay with the return.9Internal Revenue Service. Instructions for Form 720 (Rev. June 2025)
The Fuel Tax Credit
Because the federal fuel excise tax is built for highway use, businesses that burn fuel off-road can claim a credit for the tax they effectively overpaid. The fuel tax credit covers gasoline and diesel used for farming, construction, and other off-highway business purposes, such as heavy equipment on a job site or tractors on a farm.10Internal Revenue Service. Fuel Tax Credit
The fuel has to power equipment used for business on private property, farms, or construction sites, not on public roads. A landscaping company fueling commercial mowers qualifies. Mowing your own yard does not. Vehicles registered for highway use are excluded regardless of where they’re actually driven. The credit is refundable, so if it exceeds your tax liability you get the difference back as a payment rather than just a reduction in what you owe.