Taxes on Goods Made in the United States: Excise, Credits, and Tariffs

Goods made in the United States move through a layered tax system rather than a single national one. There is no federal sales tax and no federal manufacturing tax. Instead, taxes on goods made in the United States come from three main places: the federal corporate income tax and targeted federal excise taxes paid by producers of certain products; state and local sales taxes collected when the item is sold; and the rules and credits that shape what manufacturers themselves owe. Imports get the same state sales tax at the register, plus tariffs that domestic goods do not pay.

What the Federal Government Taxes, and What It Doesn’t

The federal government does not impose a general sales tax on retail purchases, and it does not impose a broad tax on the manufacture of goods. The main federal tax that touches most American-made products is the corporate income tax, which sits on the profits of the company making them rather than on the products themselves.

The federal corporate income tax is a flat 21 percent, set by the Tax Cuts and Jobs Act of 2017.¹ There is no separate federal corporate rate for manufacturers, though proposals for a 15 percent domestic-manufacturing rate have circulated in policy debate.² Most states add their own corporate income tax on top, running from zero in some states to 11.5 percent in others.

Federal Excise Taxes on Specific Products

Where the federal government does tax goods directly, it does so through excise taxes on particular categories. These are collected from the manufacturer, importer, or retailer and get built into the shelf price. Many of the revenues flow into dedicated trust funds, such as the highway fund fed by fuel taxes, rather than the general treasury.³

Gasoline is taxed at 18.4 cents per gallon and diesel at 24.4 cents per gallon.⁴
Distilled spirits are taxed at $13.50 per proof gallon, with a reduced $2.70 rate on the first 100,000 proof gallons from eligible domestic producers. Beer is taxed at $18.00 per barrel, with reduced rates for smaller breweries. Wine ranges from $1.07 to $3.40 per gallon depending on type.⁵
Small cigarettes carry roughly $1.01 per pack of 20. Large cigars are taxed at 52.75 percent of the sale price, capped at about 40 cents per cigar.⁵
Pistols and revolvers carry a 10 percent excise tax on the sale price; other firearms and ammunition are taxed at 11 percent.⁵
Federal excise taxes also reach airline tickets, heavy trucks, indoor tanning services, tires, ozone-depleting chemicals, and low-mileage “gas guzzler” vehicles.⁴

Businesses subject to these taxes generally file Form 720, the Quarterly Federal Excise Tax Return, with the IRS.³ Everything outside these categories sees no federal tax on the good itself.

State and Local Sales Tax at the Register

The most visible tax on any product sold in the United States comes at the state and local level. Forty-five states and the District of Columbia impose a sales tax on the retail sale of tangible goods and some services.⁶ The rate does not depend on where the product was made. A shirt made in North Carolina and a shirt made in Vietnam are taxed at the same rate when sold in an Ohio store.

Five states levy no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska allows local jurisdictions to impose their own. Among states that do charge sales tax, California has the highest state-level rate at 7.25 percent as of January 2026, and Colorado has the lowest at 2.9 percent. Once local add-ons are counted, Louisiana averages 10.11 percent, Tennessee 9.61 percent, and Washington 9.51 percent.⁷

Sales tax is collected by the seller and remitted to the state. When a buyer purchases from an out-of-state seller that does not collect it, the buyer generally owes a matching “use tax” to their home state. After the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect sales tax once they hit economic thresholds, commonly $100,000 in sales or 200 transactions in the state, even without a physical presence.⁶ Many states exempt necessities like groceries and prescription medicines.

How the Code Treats the Manufacturers Themselves

The 21 percent corporate rate is only part of what determines a manufacturer’s real tax bill. The rules for how quickly a company can deduct the cost of factories, machinery, and research have historically shaped that bill more than the headline rate.

Capital costs are the pressure point. When a manufacturer builds a factory or buys expensive equipment, those costs traditionally had to be spread across many years through depreciation schedules rather than deducted right away. A dollar deducted years from now is worth less than a dollar deducted today, which effectively raises the tax burden on capital-intensive manufacturers compared with service businesses that deduct their main cost, wages, immediately.⁸ Research-intensive manufacturers took a similar hit starting in 2022, when the Tax Cuts and Jobs Act required domestic R&D costs to be amortized over five years instead of expensed immediately.⁹

The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, rewrote all three of those rules for manufacturers:¹⁰

Bonus depreciation. The law permanently restores 100 percent first-year expensing for qualified business property acquired after January 19, 2025, and lets manufacturers write off 100 percent of the cost of new manufacturing facility construction (excluding office space) in the first year, provided construction begins before January 1, 2029, and the facility is placed in service by January 1, 2034.¹⁰¹¹
R&D expensing. Domestic research costs from 2025 onward can again be deducted immediately rather than amortized over five years. Small businesses with average annual gross receipts of $31 million or less can apply this retroactively to 2022. Foreign R&D costs still must be amortized over 15 years.¹⁰⁹
Interest deduction. The law restored a more generous formula for the business interest deduction, letting manufacturers add back depreciation and amortization when calculating their deduction limit and thereby deduct more of their borrowing costs.¹⁰

Federal Credits That Reward Making Things in America

Beyond the general rules, Congress has built targeted credits into the code to lower the tax bill for specific kinds of domestic manufacturing.

Section 45X Advanced Manufacturing Production Credit

Created by the Inflation Reduction Act of 2022, the Section 45X credit pays per-unit tax credits for eligible components produced and sold in the United States. Qualifying products include solar panels and their components, wind turbine parts, battery cells and modules, inverters, and critical minerals.¹² Amounts vary by component: $35 per kilowatt-hour for battery cells, 7 cents per watt for solar modules, and 10 percent of production costs for electrode active materials and critical minerals.¹³

The credit phases down after 2029, dropping to 75 percent in 2030, 50 percent in 2031, and 25 percent in 2032 before expiring.¹⁴ The OBBBA added restrictions that deny the credit for components receiving “material assistance” from prohibited foreign entities, so manufacturers now have to track the origin of their inputs.¹²

Section 48C Advanced Energy Project Credit

Originally created in 2009 and expanded by the Inflation Reduction Act with $10 billion in funding, the Section 48C program offers an investment tax credit of up to 30 percent for qualifying manufacturing facility projects. Eligible investments include building or retooling facilities that make clean energy components, process critical minerals, or reduce greenhouse gas emissions at industrial plants.¹⁵ Roughly $4 billion was allocated in Round 1 (March 2024) and $6 billion in Round 2 (January 2025), covering about 250 projects across roughly 30 states.¹⁶

Domestic Content Bonus

Clean energy projects can earn an additional 10 percent bonus on top of the base investment tax credit by using 100 percent domestically produced structural steel and iron and meeting threshold requirements for U.S.-manufactured products.¹⁷

Where Imports Get Taxed Differently: Tariffs

The clearest tax difference between American-made and foreign-made goods is the tariff. A tariff is paid by the U.S. importer, not the exporting country, to U.S. Customs and Border Protection when goods enter the country.¹⁸ Domestic goods do not pay it.

The tariff picture changed sharply in 2025. The average U.S. import tariff rate rose from 2.6 percent at the start of the year to 13 percent by year’s end, and research from the Federal Reserve Bank of New York found that nearly 90 percent of the burden fell on U.S. firms and consumers, with foreign exporters absorbing only 10 to 14 percent.¹⁹ Prices for goods imported from China rose 8.5 percent year over year through December 2025.²⁰

Then, on February 20, 2026, the Supreme Court ruled 6–3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs. The majority held that the power to levy tariffs is a core congressional authority and that IEEPA’s authorization to “regulate” imports does not cover the power to tax. The ruling wiped out the reciprocal and drug-trafficking tariffs that had been imposed under IEEPA, some of which reached effective rates as high as 145 percent on Chinese goods.²¹

The administration responded on February 24, 2026, by imposing a temporary 10 percent import surcharge under Section 122 of the Trade Act of 1974, which authorizes the president to impose tariffs for up to 150 days to address balance-of-payments problems. That put the scheduled expiration at July 24, 2026.²² On May 7, 2026, the U.S. Court of International Trade ruled 2–1 that the president had not demonstrated the required balance-of-payments deficit, though an appeals court stayed the ruling while the government appeals, and importers continue to pay the 10 percent duty in the meantime.²³

Tariffs imposed under other legal authorities were unaffected by the IEEPA ruling. Section 232 tariffs on steel and aluminum were modified in April 2026, with rates now reaching 50 percent on articles made entirely or almost entirely of steel, aluminum, or copper, and 25 percent on derivative products. A reduced 10 percent rate applies when the metal content was smelted or poured in the United States.²⁴ All previously granted country exemptions and product exclusions for Section 232 were revoked in March 2025.²⁵

As of mid-2026, the Tax Foundation estimates that remaining tariffs amount to a tax increase of roughly $600 to $700 per U.S. household.²⁶²⁷ Tariffs also raise input costs for U.S. manufacturers that rely on imported steel, aluminum, or components. Ford and General Motors absorbed roughly $1 billion in extra costs from the 2018 steel and aluminum tariffs.²⁸

Why There’s No U.S. VAT, and Why It Comes Up

The United States is the only major economy that does not impose a national value-added tax.²⁹ A VAT is a consumption tax collected at each stage of the supply chain. Under the destination principle used in most VAT systems, goods are taxed where they are consumed: exports leave the producing country tax-free, with VAT paid on inputs refunded to the exporter, while imports are taxed at the same rate as domestic goods on arrival.³⁰

Some U.S. policymakers argue this puts American-made goods at a disadvantage. An American product exported to Germany faces German VAT on arrival, while a German product exported to the United States has its German VAT refunded at the border and pays no equivalent U.S. consumption tax. Critics call the mismatch a hidden “Made in America export tax.”³¹ Economists generally counter that a VAT applies equally to domestic and imported goods within a country and is offset by currency movements, so it does not function as a trade barrier.²⁹ The debate is part of why border adjustment proposals and reciprocal tariffs keep resurfacing in U.S. trade policy.³²

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3
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4
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