Understanding Excise Taxes

For both business owners and consumers, taxes make buying and selling things expensive. It’s one of those facts of life. There are many different tax laws that have to be complied with at both the state and federal level, which sometimes makes it difficult to figure out how much things actually cost. As consumers, we’re most used to sales taxes calculated on the total cost of goods or services at checkout. But as a producer or merchant, there are even more taxes that go into the calculation of prices for goods and services that the consumer might not even be aware of. One of these kinds of taxes is called an excise tax. So what exactly is an excise tax? And how do they affect businesses and consumers in Washington State? Let’s discuss the basics.

What is an Excise Tax?

Excise taxes are taxes that are charged on the sale of a specific good. However, they are not like sales taxes because those are applied to everything we buy while an excise tax is only on specific things, like luxury items or real estate. Unlike the sales tax, which varies depending on the price of the good or service, excise taxes are a flat rate tax applied to the item before the sale. The IRS (or in Washington State, the Department of Revenue), levies excise taxes on the producer or merchant, who then usually includes the tax in the sale price of the good, thus indirectly passing the tax price on to the consumer who pays for that good.

In Washington State, this type of tax is applied to real estate sales, use tax, business and occupation activities, and some retail sales. As mentioned above, it is administered by the Department of Revenue.

Types of Excise Tax

In general, there are two types of excise taxes. They are:

  • Ad Valorem: This is a percentage that is levied based on the value of a specific good, such as a percentage of the retail price for an item.
  • Specific: This is levied based on the quantity of the specific good. For example, for the sale of cigarettes, it would be a fixed dollar amount per cigarette.

As you can see, determining exactly how much excise tax to pay and on what items can get very complicated, particularly because it varies by state; not to mention, you also have to worry about federal excise tax rates as well.

What happens if there’s a dispute?

If you find yourself in a tax dispute, it is always important to speak to an experienced tax attorney to help guide you through the appeals process. If you choose to appeal an excise tax that you paid, you have to act relatively quickly as there’s generally a 30-day time limit for such appeals. At Boeshaar Law, we help our clients deal with tax disputes at both the state and federal level. If you have any questions about your excise tax return or have received an unfavorable administrative review decision from the Department of Revenue or IRS that you wish to appeal, please don’t hesitate to contact us today!