Excise Tax: What Is It and When Do You Have to Pay It?

Written by Gregory Chaliff | Oct 14, 2022 1:13:00 PM

What is excise tax? An excise tax is a legislated tax imposed on some goods, services, and activities. In order to be compliant with IRS requirements, small businesses need to know whether or not they need to pay and file excise taxes.

Goods, Services, and Activities That Are Subject to Excise Tax

Excise taxes are usually paid by businesses. Businesses pay an excise tax when an item or activity is considered either a luxury or socially harmful.

These include items like:

Luxury vehicles
Alcohol
Tobacco, vaping, and e-cigarettes
Gas and fuel
Plane tickets
Indoor tanning beds
Medical and recreational marijuana
Firearms and ammunition
Gambling and sports betting

Certain excise taxes are called “sin taxes” if the item is considered to be of high social cost– usually related to tobacco and alcohol products. But not all excise tax is “sin tax.” Simply put, a good or service that is considered unhealthy or luxurious by lawmakers will incur excise tax.

Excise tax is determined by three factors:

The tax base (qualifications of the taxed item)
The rate
Specific measures, such as price or rate

Who Pays Excise Tax?

Businesses that sell these excise-taxed items must pay the corresponding tax.

Sometimes, these taxes are state-based, and other times they are federal. The amount owed is dependent on local, state, and federal tax requirements.

In Tennessee, the Department of Revenue states,

“If you are a corporation, limited partnership, limited liability company, or business trust chartered, qualified, or registered in Tennessee or doing business in this state, then you must register for and pay franchise and excise taxes[....]"

The excise tax is based on net earnings or income for the tax year."

How to File Federal Excise Taxes

Federal excise taxes should be paid quarterly.

Businesses can file by mail or use the IRS Electronic Funds Tax Payment System (EFTPS). IRS Form 720 will provide you with the instructions you need to file federal excise taxes.

What About Excise Taxes in Tennessee?

Excise taxes in Tennessee must be filed electronically.

The best way to do this is through the Tennessee Taxpayer Access Point (TNTAP). Businesses will need to have a TNTAP account to fulfill this requirement.

Getting Help for Excise Taxes in Tennessee

If your small business wants to ensure total compliance with federal and state requirements, a great strategy is to use a small business CPA.

Hiring a CPA for your small businesses means you don’t have to stress about making accounting and tax filing mistakes. These kinds of mistakes, after all, can be expensive and time-consuming.

Instead of worrying about doing it all yourself, choose a qualified and experienced CPA to help. Your CPA can handle the details about what is an excise tax and other areas of your business.

CHALIFF + ASSOCIATES: EXCISE TAX EXPERTS

Small businesses in Tennessee have someone on their side: Chaliff + Associates.

We pride ourselves on delivering superior accounting services to the Mid-South along with an exceptional customer experience!

Schedule a free consultation with a member of our Chaliff + Associates team today to learn more about accounting best practices and how we can alleviate stress and give you more time to focus on growing your business.

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