Sales tax and excise tax are both taxes on goods and services, but they differ in scope, how they’re calculated, and who administers them. Key differences

• Scope
  • Sales tax: Broad-based tax applied to most goods and services at the point of sale. Some items may be exempt (varies by jurisdiction).
  • Excise tax: Narrow tax applied to specific goods or activities (for example, alcohol, tobacco, gasoline, certain luxury items). Often included in the product price or collected at production/wholesale.
• Tax base and calculation
  • Sales tax: Typically a percentage of the purchase price. The rate can combine state, county, and city components and is added at checkout for consumers.
  • Excise tax: Can be a fixed amount per unit (for example, cents per gallon) or a percentage of the price, depending on the product and jurisdiction.
• Point of collection
  • Sales tax: Collected from the end consumer at the point of sale by retailers.
  • Excise tax: Usually collected earlier in the supply chain—at production, wholesale, or importation—by manufacturers or distributors, though some jurisdictions pass it along to consumers.
• Purpose and policy rationale
  • Sales tax: Primarily a broad revenue source for state and local governments to fund general services.
  • Excise tax: Often used to discourage certain behaviors (sin taxes) or to offset costs associated with particular goods (such as environmental or public health concerns), though they also raise revenue.
• Administration
  • Sales tax: Administered by state and local tax authorities; rates and rules vary widely by location.
  • Excise tax: Administered by the same set of authorities but tied to specific products; reporting and valuation rules can be more complex for those products.

Common examples

• Sales tax: Purchases like groceries (often exempt or taxed at a reduced rate in many places), clothing, electronics, and services in many jurisdictions.
• Excise tax: Gasoline, cigarettes, alcohol, air travel security fees, and certain environmental or luxury items, sometimes embedded in the price.

Tips to keep straight

• If a tax applies to many everyday purchases across the board, it’s usually a sales tax.
• If a tax targets a specific good or activity (often with a per-unit charge), it’s typically an excise tax.
• The terminology and rules can vary by country and even within regions of a country, so it’s good to check the local tax authority’s guidance for precise definitions and rates where you live or do business.