Congress establishes federal excise taxes
Federal excise taxes are taxes placed on specific goods and services. Taxes on motor fuel, tobacco and alcohol are key federal excise taxes. Some communication and transportation products and services also have excise taxes. These taxes are indirect, which means the tax is incorporated into the price of the goods. When federal excise taxes rise, businesses pass this cost on to the consumer by raising the product price. Businesses use Internal Revenue Service (IRS) Form 720 to report excise taxes.
Fuel
Gasoline has an excise tax
Among the fuels taxed are diesel, kerosene, automobile gasoline, aviation gasoline and all liquefied fuels including petroleum, coal, natural gas and biomass. Treasury Department Form 720 shows the tax breakdown for each of these types of fuels. Businesses pass any excise tax increase onto the consumer in higher fuel costs. The government also charges an excise tax for harmful environmental oil spills and for chemicals that deplete the ozone.
Tobacco and Alcohol
Tobacco products have significant excise taxes
Federal excise taxes on tobacco products are significant. Taxes have increased three times from 2005 to 2009. In order to help fund the Children's Health Insurance Reactivation Act (CHIRPA) the federal government increased the excise tax on cigarette packs to $50.33 per 1,000 cigarettes. For a pack of cigarettes the tax cost changed from 39 cents to $1.01. Many organizations support excise taxes on tobacco products, pointing out the high health costs from smoking. The Center for Disease Control estimates this at $76 billion dollars of direct cost per year. The Department of the Treasury also taxes alcohol products. The rate varies for beer, wine or spirits. Spirits are defined as products with a 50 percent alcohol content or higher.
Communication and Transportation
Air transportation is taxed
The federal government charges an excise tax on local phone service. IRS Notice 2006-50 clarifies that only local telephone services are taxable. Long distance services and bundled services such as Voice over Internet Protocol (VOIP) are not. The government taxes air transportation for people and products and the use of international airports. Federal transportation excise taxes help support an airport trust fund. Also, a federal security surcharge on each ticket aids in funding the Department of Homeland Security (DHS).
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