Excise Tax Law and Legal Definition

An excise tax is a type of ad valorem tax that is imposed at the time of a purchase or sale transaction (sales tax or value added tax (VAT)) or in connection with importation across a political border (tariffs). The tax may be based on the purchase price or the declared value, or some standard estimate of a fair price: for example, the sales tax on used boat purchases in the United States is determined with reference to a published list of prices.

Excise taxes are often pledged for certain purposes. For example, a fuel excise is often used to pay for public transportation, especially roads and bridges and for the protection of the environment. Excises (or exemptions from them) are also used to modify consumption patterns. For example, a high alcohol or tobacco excise is used to discourage alcohol and tobacco consumption, relative to other goods.