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What is an excise tax and when may a business need to collect it?

On Behalf of | Apr 5, 2022 | Federal And State Tax Collections |

The Internal Revenue Service defines an excise tax as one levied on “specific goods or services.” According to, consumers pay federal excise taxes for goods such as fuel, tires, tobacco and heavy trucks. Services that incur excise taxes under the federal tax code include indoor tanning and online sports betting.

If your business offers goods or services subject to federal excise taxes, the IRS generally requires filing a Form 720 for each quarter. According to the IRS website’s instructions, excise tax returns provide information about the amounts collected during the quarter. To avoid penalties, businesses must report and submit the excise taxes that their customers paid.

Does New York require additional excise taxes?

According to the New York State Department of Taxation and Finance website, businesses generally collect state excise taxes on alcoholic beverages. This includes sales or distribution of beer, liquor and wine. If your business is in New York City, the Big Apple imposes an additional excise tax on beer and liquor with at least 24% alcohol by volume.

New York State’s excise tax collection and submission statutes relate to registered distributors of alcoholic beverages. Tax exemptions, however, exist for certain alcohol distributors that sell to other distributors. Some businesses may also apply through the State Liquor Authority to qualify for a tax exemption related to selling for non-beverage purposes.

Why do excise taxes exist?

As reported by NerdWallet, luxury goods and services or items that have a reputation of harming society incur excise taxes. Also known as “sin” taxes, businesses that sell “unhealthy” products such as cigarettes may owe a duty to collect excise taxes from their customers.

Collecting tax requires reporting and forwarding the details to state or federal authorities. With certain exceptions, however, a business may not have an excise tax obligation.