How is an Excise Tax Different from a Sales Tax?

If you decide to start your commerce or e-commerce business, one of the crucial aspects that you have to consider is taxes. Along with different types of taxes that you have to pay, sales tax and excise tax are two of the most important ones which you should understand. Today in this Prestige Auditors article, we are going to talk to you both about Sales Tax and Excise Tax, and will try to figure out the main differences between these two taxes.

Excise Tax

As a rule, excise tax is being charged on special product categories such as alcohol or tobacco, and is imposed by the government. Excise taxes are especially used for businesses, rather than for the customers; however, excise taxes can negatively influence the price of the product.
Excise taxes are established both by the local and state governments and are considered to be a miniscule part of the state’s revenue. If you run your business in a specific state, then you have to pay excise taxes along with other taxes such as income tax. In that case, if you are being charged excise taxes, you have to file a Form 720 once every Q4. Generally, there are two main types of excise taxes:

  • Ad valorem excise taxes
  • Specific excise taxes

Ad valorem excise tax is a percentage based on the actual value of a settlement or goods (mostly during purchasing property), while specific taxes are only imposed on every unit that is sold.
Excise taxes are also sometimes referred to as sin taxes, since they are usually imposed on high- demanded products like tobacco or alcohol that are somewhat harmful to consumers.

Sales Taxes

A sales tax is also imposed by the government for selling goods and providing services. Sales taxes are charged by the seller for further passing to the government. As a rule, a sales tax is being charged on the end user of the taxed product. Therefore, most of the sellers obtain a resale certificate provided by the government, in order to avoid paying sales tax. Once you get a resale certificate, you do not have to pay sales taxes anymore.
Now that we have already figured out the definition for both excise and sales, let’s try to understand what the difference between them is.

Difference

Generally, sales taxes are being collected from buyers, when they purchase a specific product. On the other hand, an excise tax is imposed solely on special categories of the products, which can harm consumers, such as cigarettes and alcoholic beverages. Another difference between these two taxes is that sales tax is a percentage of a product or service’s price, while excise tax is a per unit tax.
If you are a novice in the e-commerce business, and it is difficult for you to figure out the main difference between taxes, then Prestige Auditors’ professional team is here to help you! We will not only provide you with a full guideline of the main types of taxes, but also can assist you in the process of filing these taxes. Even more, thanks to the efforts of our professional team, we can help you obtain certificates which will exempt you from additional taxes. Contact as and we will solve any issues within your e-commerce business, and any type of business in general!