Excise

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Excise, sometimes called an excise duty, is a type of tax. The term excise has more than one legal meaning. Excises may vary among different jurisdictions.

Contents 1 In the United States 2 Constitutional law 3 Statutory law 4 Comparison of differing definitions of "excise" under U.S. law 5 Commentaries on excises 6 Notes 7 See also

[edit] In the United States

In the United States, the term has a constitutional law meaning and at least one statutory law meaning.

[edit] Constitutional law

In the U.S. constitutional law sense, an excise is essentially an event tax (as opposed to a state of being tax).

An example of a state of being tax is an ad valorem property tax (which is not an excise). It may be imposed on the property or the person who owns that property at a certain moment on (for example) January 1 of each year based on the state of title at that given moment. The "state of title" (state of ownership) -- of property by reason of its ownership -- is being taxed. The next year, on January 1st, another such tax is imposed again in the same way on the same property and person, even though there has been no change (no intervening event). The amount of the tax may change from year to year, based on the change in the value of the property or a change in the tax rate, or both, but those are separate issues governing how the tax is computed. What is being taxed, fundamentally, is the state of title -- and state of title is not an event but is instead a state of being.

By contrast, a realization of income (such as a receipt of wages) is an event. A sale is an event. A transfer of title by gift is an event. A transfer of title because of death is an event. Income taxes, sales taxes, and transfer taxes are all examples of event taxes. When a person receives money as income, it is not the ownership or state of title of the money itself that is taxed, but rather the fact that an income event has occurred. Although the tax is paid with money, that is a separate issue. If the recipient take the money and puts it under his or her bed for ten years, the income tax is not re-imposed on that money every year the money is under the bed. Only one thing is taxed by the income tax -- the income event.

For purposes of the U.S. Constitution, an excise is essentially any indirect tax, or event tax. An excise means any tax other than (1) a tax on property by reason of its ownership; or (2) a capitation, or head tax.^[1]

For U.S. constitutional law purposes, a duty is nominally in a separate category from an excise. However, a duty is similar to an excise in that a duty is generally imposed on an event (such as an importation) and not on a state of being.

[edit] Statutory law

The term "excise" also has a statutory law meaning. Generally, in the United States any statute that imposes a tax specifically denominated as an "excise" is an excise tax law. U.S. Federal statutory excises are (or have been) imposed under Subtitle D ("miscellaneous excise taxes") of the Internal Revenue Code, 26 U.S.C. § 4001 through 26 U.S.C. § 5000, relating to such things as luxury passenger automobiles, heavy trucks and trailers, gas guzzler vehicles, tires, petroleum products, coal, vaccines, recreational equipment, firearms (see National Firearms Act), communications services (see Telephone federal excise tax), air transportation, policies issued by foreign insurance companies, wagering, water transportation, removal of hard mineral resources from deep seabeds, chemicals, certain imported substances, non-deductible contributions to certain employer plans, and many other subjects.

Another example of an excise is a tax or duty levied on the sale or importation of specific goods or a fixed rate tax on the sale or importation of specific goods; in this manner it differs from a general sales tax or value added tax.

Excise duties usually have one of two purposes: to raise revenue or to discourage particular behaviour. Taxes such as those on sales of fuel, alcohol and tobacco are often justified on both grounds. Some economists suggest that the optimal revenue raising taxes should be levied on sales of items having an inelastic demand, while behaviour altering taxes should be levied where demand is elastic.

A common example of an excise tax is the tax on sales of cigarettes: a fixed fee on each pack of cigarettes sold. The cigarette excise tax varies by state and ranges from 7 cents per pack in South Carolina to $2.46 per pack in Rhode Island. The excise tax doubles or even triples the retail cost of cigarettes in some states, but can be still avoided in many states by buying tobacco and cigarette paper separately.

A reason why the governments state that excise taxes should exist is to internalize external costs. For example, the alcohol excise tax could be used to pay for the treatment of alcohol-caused diseases.

Excise taxes can be imposed at the point of production or importation, or at the point of sale. They are usually waived or refunded on goods being exported, so as to encourage exports, though they are often re-imposed by the importing country. Smugglers will seek to obtain items at a point at which they are not taxed and then sell them at price between the pre-tax and post-tax price. They also look to find loopholes, which may exist through importing to different countries, before then exporting to the destination country.

For similar items, excise duties are the same for imported and domestically produced goods; if the tax is different, then there is an explicit or implicit customs duty or tariff.

An unusual example of an excise tax is found in the State of Hawaii. In lieu of a sales tax, the State of Hawaii imposes a General Excise Tax, or GET, on all business activity in the State. The GET is charged at a rate of 4% for most businesses and 0.5% for wholesalers. The tax is imposed on all business entities, so in essence, the tax is collected at every level of production (material supplier to manufacturer to wholesaler to retailer) producing a "cascade effect" effectively adding 16-18% to the price of consumables purchased at retail. The GET is also charged on all business service activity such as real estate agent commissions, lawyer fees and the like. With Hawaii's industry heavily dependant on tourism and tourist spending, the State regularly raises nearly half its government revenues through the imposition of the General Excise Tax.

[edit] Comparison of differing definitions of "excise" under U.S. law

In the U.S. constitutional law sense, an excise includes gift taxes, estate taxes, payroll taxes, sales taxes, miscellaneous excise taxes, and income taxes on any income other than income from property, etc. -- in short, any tax that is not a direct tax.^[2] In the U.S. statutory sense, however, only the "miscellaneous excise taxes" are denoted as "excises."

[edit] Commentaries on excises

Samuel Johnson's A Dictionary of the English Language defined excise in 1755 as A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid.

While presenting before the Supreme Court, Mr. Edward F. McClennen described the excise tax as follows:

"Excise," in England and in the Colonies, for at least one hundred and forty years before it was used in the Constitution, meant an inland levy on selected tangible property, or upon the owners of it, because of the activity in which the property was moving, as in the manufacture, in intermediate sale, or in the ultimate sale commonly amounting to consumption. The antithesis was the direct tax upon property in general, certainly land, when taxed on a rate fixed by its static appraised capital value, possibly when measured by its annual unwrought return in rent, income, or products, and, debatably, upon personal property so appraised or judged. Both the direct tax and the excise were preeminently property taxes, -- one regardless of its activity or inactivity, and the other taking that activity into consideration. In 1766 Dr. Johnson defined "excise" as "a hateful tax levied upon commodities, and adjudged not by the common judges of property." Dict. (3d ed., 1766). He defined "commodity" as "interest, advantage, profit, convenience of time or place, wares, merchandise." Id. "Commodity" suggests, as the principal thought, merchandise. In 1776 Adam Smith in his "The Wealth of Nations" said, "The duties of excise are imposed chiefly upon goods of home produce destined for home consumption. They are imposed only upon a few sorts of goods of the most general use." In 1780 the Massachusetts constitution indicated direct taxes to be the normal source of revenue, but gave the legislature authority to impose "reasonable duties and excises, upon any produce, goods, wares, merchandise, and commodities, whatsoever." In 1788 the Constitutional Convention of New York urged an amendment to the Constitution "That the Congress do not impose any excise on any article (ardent spirits excepted) of the growth, production, or manufacture of the United States, or any of them." 1 Elliot's Debates 72; Luther Martin said "By the power to lay excises, -- a power very odious in its nature, since it authorizes officers to go into your houses, your kitchens, your cellars, and to examine into your private concerns, -- the Congress may impose duties on every article of use or consumption, on the food that we eat, on the liquors that we drink, on the clothes that we wear, the glass which enlightens our houses, or the hearths necessary for our warmth and comfort." Cf. Chancellor Livingston in the New York Convention, 2 id. 341; Nicholas in the Virginia Convention, 3 id. 243; also 5 id. 40; Hamilton, Federalist, No. 21, p. 182; Ellsworth, Connecticut Convention, 2 Elliot 192; Writings of Gallatin, p. 73.

Excise in India-- It is a tax on the manufacture of goods that is levied when goods leave the place of manufacturer. Manufacturers can set off the duty paid on input materials against their output duty a procedure known as Central value added tax (CENVAT).

[edit] Notes

[edit] See also

• Her Majesty's Customs and Excise