How It Works
Excise taxes are commonly included in the price of a product, such as cigarettes or alcohol, as well as in the price of an activity,often gambling. Excise taxes may be imposed by both Federal and state authorities.
Excise taxes usually fall into one of two types:
Ad Valorem; meaning that a fixed percentage is charged on a particular good or product. This administration of the tax is less common.
Specific; meaning that a fixed currency amount may be imposed depending on the quantity of the goods or products that are purchased. Specific is the most common type.
For example, a bottle of wine that normally costs $10 may have a specific excise tax of $2 imposed on it. As per the intent of the excise tax, the additional cost of the wine is passed onto the consumer, making the retail cost of the bottle $12. While this seemingly does not affect the maker of the wine, who's still gains $10 in revenue, an increase in price does reduce quantity demanded, which would indeed affect his balance sheet.
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