Building Your Business Business Taxes How To Report and Pay Excise Taxes for a Business Federal, State, and Local Excise Taxes Explained By Jean Murray Jean Murray Facebook Twitter Jean Murray, MBA, Ph.D., is an experienced business writer and teacher who has been writing for The Balance on U.S. business law and taxes since 2008. She has taught accounting, business law, and business finance at business and professional schools for over 35 years, has authored several books on saving money and simplifying your business, and was the owner of startup-focused company Emence Enterprises, LLC. learn about our editorial policies Updated on June 25, 2021 Share Tweet Pin Email In This Article View All In This Article What Is an Excise Tax? State and City Excise Taxes How to Report, Pay, and File Federal Excise Taxes Excise Taxes as a Trust Fund Tax Frequently Asked Questions (FAQs) Photo: andresr / Getty Images An excise tax is a tax on the use or consumption of certain products like motor fuels, cigarettes, and alcohol, and on services and activities like sports betting. Excise taxes may be imposed by the federal government or state and local authorities in order to raise revenue, be competitive, and encourage or discourage use. if your business sells products or engages in activities that may be subject to excise taxes, here's information to help you know when and how to pay and report these taxes. Key Takeaways Excise taxes are imposed on certain products, services, and activities like cigarettes, gasoline, and gambling.The federal government, states, cities, and towns all can set the items subject to excise taxes and tax rates.Businesses must collect these taxes from payees and keep records of these payments.Federal excise taxes must be reported and paid quarterly. What Is an Excise Tax? Excise taxes have been imposed on specific goods and activities in the U.S. since the whiskey tax in 1791. Some are "sin taxes" that aim to control the use of certain products like cigarettes and sports betting. Others are akin to user taxes imposed on goods like motor fuels, in which drivers pay a price for contributing to traffic congestion and the need for road repairs. Businesses must pay federal excise taxes on many products, services, and activities, including: Airline tickets and air cargo shippingAlternative fuel mixturesEnvironmental products such as domestic petroleum oil spills and ozone-depleting chemicalsCommunications taxes on local phone servicesFuels used in business, including gasoline, diesel, kerosene, and ethanolPurchase of trucks, trailers, and semi-trailers (at a percentage of the sales price on the first retail sale)Ship passenger tax (per passenger)Manufacturers' taxes on coal, taxable tires, gas guzzlers, etc.Foreign insurance taxesSport fishing equipment, fishing rods, poles, outboard motors, etc.Floor stocks tax on ozone-depleting chemicalVaccines including those for influenza In most cases, your business is responsible for collecting these taxes and passing on the collected taxes to the IRS. State and City Excise Taxes Many states impose excise taxes on different goods and services. Here are some notable examples: Many states and localities use car rental excise taxes to raise revenue, while some states also allow localities to add a rental car tax. Several states have imposed excise taxes on recreational marijuana to compete with illicit operators.Over half of U.S. states impose excise taxes on vaping products.No states have imposed excise taxes on sugar-sweetened beverages, but several localities have. Philadelphia, for example, has a tax of 1.5 cents per ounce.Georgia has excise taxes on malt beverages, wines, distilled spirits, cigarettes, cigars, little cigars, and loose or smokeless tobacco.Atlanta has excise taxes on hotel/motel stays and car rentals.The Oneida Indian Tribe in New York has an excise tag on cigarette sales to non-Indians. Note To find out what products, services, and activities are subject in your state, see this list of state tax agencies from the Federation of Tax Administrators. For local excise taxes, search for your locality's website and look for the "tax" or "revenue" department. How to Report, Pay, and File Federal Excise Taxes Form 720, the Quarterly Federal Excise Tax Return, is used to report on federal excise taxes collected by the business for a variety of products and services. Form 720 includes several pages of excise taxes that your business might have to pay and the rate. Paying Quarterly Excise Taxes Filing also means paying. Part III of the form requires you to: Total the tax dueTotal the deposits you made during the quarterTotal any overpayment from previous quartersCalculate the total balance due You'll need to pay any balance due when you file the form. Filing Form 720 You must file Form 720 quarterly, within one month after the end of each quarter, for all the excise taxes you collected during the quarter: Quarter-end March: File by April 30Quarter-end June: July 31Quarter-end Sept: Oct 31Quarter-end December: January 31 If the due date is a weekend or holiday, the form is due the next business day. You can e-file Form 720 and submit your payment using the IRS Electronic Funds Tax Payment System (EFTPS) system or send it in by mail. Read the Instructions for Form 720 for more information. Excise Taxes as a Trust Fund Tax Excise taxes are a trust fund tax, meaning that they are collected by the business and held in trust, then paid to the IRS at specific times. Even if you forgot to collect the tax from your customers, you must still pay it to the IRS or your state or locality. Note The IRS imposes a trust fund recovery penalty on unpaid federal excise taxes your company owes, for the full amount of the unpaid tax. This penalty can be imposed individually on responsible persons, not just on the company, if the person acted willfully in not paying the tax. A responsible party can be a business owner, an employee, an accountant, or someone who has the authority to spend business funds. Frequently Asked Questions (FAQs) How are excise taxes different from sales taxes? While both sales taxes and excise taxes are used to raise revenue, they differ in several other ways. Sales taxes are more general, coverinng a wide range of products and services that consumers and businesses buy every day. The only items usually exempt from sales taxes are "essentials," like groceries, rent, medicine, and utilities. Excise taxes, on the other hand, are for a limited number of items and more specific purposes. Gasoline excise taxes, for example, are often used for road repairs. How are excise taxes calculated? Excise taxes have three components: The tax base, meaning the qualifications for the item being taxedThe rateThe specific measure, like price or weight Federal excise taxes for tobacco products are based on the type of product (per 1,000) and different rates for each. For example, cigarettes are taxed at $50.33 per thousand. The federal excise tax rate on sports wagering is 0.25% of the amount wagered for wagers authorized by the state and 2% of the amount wagered if not authorized by the state. The excise tax for tanning salons is 10% on tanning services that do not involve "phototherapy." In addition, no tax is levied on spray tans. Recreational marijuana is taxed based on the price, weight, or potency of the content at the rate used by each state imposing the tax. Excise taxes on rental cars may be a flat-dollar surcharge or a percentage of the price of the rental. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. United States House of Representatives: History, Art & Archives. "The 1791 Excise Whiskey Tax." Accessed June 25, 2021. Tax Foundation. "Excise Tax." Accessed June 25, 2021. IRS. "Instructions for Form 720 Quarterly Federal Excise Tax Return." Pages 3-8. Accessed June 25, 2021. Tax Foundation. "A Road Map to Recreational Marijuana Taxation." Accessed June 25, 2021. Tax Foundation. "Excise Tax Application and Trends." Vaping. June 25, 2021. Tax Foundation. "Excise Tax Application and Trends." Sugar-Sweetened Beverages. June 25, 2021. Georgia Department of Revenue. "Excise Taxes." Accessed June 25, 2021. Atlanta Dept. of Finance, Office of Revenue. "Revenue." Accessed June 25, 2021. Tax Foundation. "New York and Oneida National Reach Cigarette Tax Agreement." Accessed June 25, 2021. Institute on Taxation and Economic Policy. "How Sales and Excise Taxes Work." Accessed June 25, 2021. Tax Foundation. "Excise Tax Application and Trends." Tobacco. June 25, 2021. IRS. "Sports Wagering." Accessed June 25, 2021. IRS. "Instructions for Form 720 Quarterly Federal Excise Tax Return." Page 9. Accessed June 25, 2021. Tax Foundation. "Excise Tax Application and Trends." Ride and Car Sharing. June 25, 2021.