What Is Excise Tax? How It Works, Rates, and Who Pays

An excise tax is a tax the federal or state government places on a specific product, service, or activity rather than on purchases in general. It is paid by the business that manufactures, produces, or imports the item, and the cost is usually folded into the price before the product reaches a shelf. The federal government currently levies excise taxes on dozens of things, from gasoline at 18.4 cents per gallon to distilled spirits at $13.50 per proof gallon to indoor tanning services at 10 percent of the price.

How the Tax Reaches the Consumer

Unlike sales tax, which appears as a separate line at the register, an excise tax is almost always invisible. The legal obligation to pay sits with the business, not you. For fuel, the tax is triggered when the product leaves a refinery or import terminal, not when someone fills up at a pump.¹ Other excise taxes attach at the point of manufacture or the first retail sale. In every case, the manufacturer or importer calculates the tax, remits it to the IRS, and prices the product to recover the cost.

Economists call this an indirect tax. You pay it, but you never send a check to the government for it. Buy a gallon of gasoline and roughly 18 cents of the price is federal excise tax. The same is true of a bottle of whiskey, a pack of cigarettes, or an airline ticket — the tax rides inside the price.

How the Amount Is Calculated

Federal excise taxes are calculated in one of two ways, and the method controls whether inflation eats into what the government collects.

A specific excise tax is a flat dollar amount per unit, regardless of price. The 18.4-cent federal gasoline tax is a specific tax; it stays the same whether gas costs $2.50 or $4.50.² The $13.50-per-proof-gallon tax on distilled spirits works the same way.³ Specific taxes are simple to compute but lose purchasing power over time unless Congress raises them.

An ad valorem excise tax is a percentage of the sale price. The 10 percent tax on indoor tanning services and the 7.5 percent tax on domestic air transportation are both ad valorem.² Because the tax is a share of the price, the dollar amount collected rises automatically as prices rise.

What the Federal Government Actually Taxes

Federal excise taxes fall into several broad categories.

Fuel

Fuel taxes are the largest federal excise category by revenue. Current per-gallon rates, which include a 0.1-cent addition for the Leaking Underground Storage Tank Trust Fund, are:

Gasoline: 18.4 cents per gallon
Diesel and kerosene: 24.4 cents per gallon
Aviation gasoline: 19.4 cents per gallon

These rates have not changed in decades. The revenue funds the Highway Trust Fund, which pays for interstate highway maintenance and mass transit.²

Alcohol and Tobacco

Distilled spirits are taxed at $13.50 per proof gallon at the standard rate. Smaller producers and importers may qualify for a reduced rate of $2.70 per proof gallon on the first 100,000 proof gallons removed or imported during a calendar year.³ Beer and wine have their own tiered rates based on production volume. Federal cigarette taxes are charged per pack and add to whatever the state charges.

Firearms, Ammunition, and Sporting Goods

Federal law taxes firearms and ammunition at the manufacturer or importer level. The rate splits by type:

Pistols and revolvers: 10 percent of the sale price
Other firearms, shells, and cartridges: 11 percent of the sale price

A handgun purchase carries a lower excise tax rate than a rifle or a box of shotgun shells.⁴

Sporting goods carry their own rates. Sport fishing equipment is taxed at 10 percent, with a $10 cap on individual fishing rods. Electric outboard motors and tackle boxes are taxed at 3 percent, and bows with a peak draw weight of 30 pounds or more at 11 percent. Arrow shafts carry a specific tax of 39 cents per shaft, adjusted for inflation.⁵ Revenue from these taxes funds wildlife conservation and fishery programs.

Transportation

Air travel carries a 7.5 percent excise tax on the ticket price for domestic flights, plus per-segment fees. Heavy trucks, trailers, and tractors face a 12 percent tax on the first retail sale.² Any highway vehicle with a taxable gross weight of 55,000 pounds or more also owes an annual Heavy Highway Vehicle Use Tax, reported on Form 2290.⁶

Environmental Taxes

The Superfund chemical excise taxes apply to dozens of listed chemicals and imported chemical substances, funding hazardous-waste cleanup. Rates vary by substance. New substances added effective January 1, 2026, carry per-ton rates ranging from $0.25 for potassium bicarbonate to $14.77 for nylon 6 and caprolactam.⁷ Ozone-depleting chemicals carry separate per-pound taxes that increase based on the chemical’s ozone-depletion potential.

Health Plans

Health insurance issuers and sponsors of self-insured health plans owe an annual Patient-Centered Outcomes Research Institute (PCORI) fee, charged per covered life. For plan years ending between October and December 2025, the rate is $3.84 per covered life, due by July 31, 2026.⁸

Other Items

Domestically mined coal is taxed at the lower of a per-ton rate or 4.4 percent of the sale price. The per-ton rate is $1.10 for underground-mined coal and $0.55 for surface-mined coal.² Indoor tanning services carry a 10 percent tax on the amount paid. Wagers placed with legal bookmakers are also subject to a federal excise tax.

State Excise Taxes Sit on Top

State governments layer their own excise taxes on top of federal ones, and consumers frequently pay both without noticing.

State gasoline excise taxes vary widely, from under 10 cents per gallon to over 70 cents per gallon when all state-level taxes and fees are combined. Several states also charge sales tax on fuel on top of the excise tax. State cigarette taxes range from roughly $0.17 per pack to over $5.00 per pack. In states with legal recreational cannabis, retail excise tax rates generally run from about 3 percent to 25 percent, with most landing in the 10-to-15-percent range. Some states tax cannabis by weight rather than price, and a few use both methods at once.

Because state rates change often and differ so much across jurisdictions, businesses operating in more than one state track each state’s rules separately.

Who Files and Pays

Consumers do not file anything for federal excise taxes; the tax obligation is entirely on the business side. Most federal excise taxes are reported on IRS Form 720, the Quarterly Federal Excise Tax Return, filed by the manufacturer, producer, or importer of the taxable item.⁹ Before engaging in any activity subject to federal excise tax, the business must first register with the IRS using Form 637, which covers activities including fuel production, chemical manufacturing, and tax-free sales to exempt buyers.¹⁰ Registration has to be in place before the taxable activity begins.

Not every transaction involving a taxable product owes the tax. The federal government itself is exempt from many federal excise taxes, and certain uses of taxable fuel qualify for exemptions or reduced rates, with farm use, export, and use by state or local governments being common examples. A business that overpays or pays tax on a product that later qualifies for an exemption can claim a refund using Form 8849 with the appropriate schedule attached.¹¹

1
Office of the Law Revision Counsel. 26 USC 4081 – Imposition of Tax
2
Internal Revenue Service. Publication 510, Excise Taxes
3
TTB: Alcohol and Tobacco Tax and Trade Bureau. Tax Rates
4
Office of the Law Revision Counsel. 26 USC 4181 – Imposition of Tax
5
Office of the Law Revision Counsel. 26 USC 4161 – Imposition of Tax
6
Internal Revenue Service. Instructions for Form 2290
7
Internal Revenue Service. Superfund Chemical Excise Taxes
8
Internal Revenue Service. Patient-Centered Outcomes Research Institute Filing Due Dates and Applicable Rates
9
Internal Revenue Service. About Form 720, Quarterly Federal Excise Tax Return
10
Internal Revenue Service. 637 Registration Program
11
Internal Revenue Service. Instructions for Schedule 6 (Form 8849)