Taxes have a way of sneaking up on you. One moment, you are dancing to happy tunes and celebrating a new purchase; the next, you are trying to figure out how much you owe in excise tax. The term excise tax might sound like something straight out of an action movie, but it’s really just a fancy term for a tax on specific goods and activities. In North Carolina, this tax is a necessary (but often confusing) part of transactions. But today, we will simplify and turn it into a clear, step-by-step guide you can actually understand.
What is Excise Tax?
Excise tax is a tax imposed on select goods, services, or activities, often included in the price of the product. Unlike general sales tax, which applies to most goods and services, excise taxes target particular items. Some common examples include:
- Gasoline: The price of gasoline per gallon includes a federal excise tax that serves to fund highway and infrastructure projects.
- Alcohol and Tobacco: Tobacco and alcohol fall under goods that pose certain health risks. As such, the excise taxes on them aim to reduce consumption while generating government revenue.
- Air Travel: The excise taxes included in the price of airline tickets help fund airport maintenance and air traffic control services.
These taxes help with revenue generation, and sometimes, they discourage the consumption of certain products due to health or environmental concerns.
Who Pays Excise Tax in North Carolina?
In North Carolina, the excise tax is an important revenue source for the state. Here’s a simple breakdown of who is responsible for paying it.
- Manufacturers and Producers: Companies that produce excisable goods, such as alcohol and tobacco, are also required to pay excise tax. They must accurately report their production and sales and pay the state tax.
- Retailers and Wholesalers: Retailers and wholesalers are the primary payers of excise tax. They collect the tax on specific goods like alcohol, tobacco, and motor fuels, then send it to the state.
- Consumers: While consumers don’t pay excise tax directly, they feel its impact through higher prices on goods like cigarettes, gasoline, and alcohol. The tax collected by retailers and wholesalers often leads to increased product prices.
- Vehicle Owners: When you buy or register a vehicle in North Carolina, you pay the Highway Use Tax. This tax is due when getting a new license plate or transferring a vehicle title.
Calculating Excise Tax in North Carolina
Calculating excise tax in North Carolina is a straightforward process, and the breakdown below covers the general steps involved.
General Steps for Calculating Excise Tax
- Determine the Excise Tax Rate: First, find the applicable tax rate for the product or service you’re selling. The rate can vary based on the item.
- Multiply the Tax Rate by the Taxable Amount: Once you know the tax rate, multiply it by the taxable amount (usually the sale price or value of the item).
The result of the above multiplication is the excise tax you are legally required to pay. Pay this amount according to North Carolina’s tax regulations.
Excise Tax Calculation for Specific Products in North Carolina
Motor Fuels Tax
- Identify the number of gallons sold
- Multiply the number of gallons by the motor fuels tax rate (40.5 cents per gallon).
The result is the motor fuels tax you owe to the state.
Alcoholic Beverage Tax
- Determine the total gallons of alcoholic beverages sold.
- Find the specific tax rate for the type of beverage and its alcohol content.
- Multiply the number of gallons sold by the applicable tax rate. The result is the alcoholic beverage tax you owe.
Tobacco Products Tax
- Determine the total quantity of tobacco products sold.
- Find the tax rate for the specific type of tobacco product.
- Multiply the number of tobacco products sold by the applicable tax rate.
The result is the tobacco products tax you owe to the state.
Using the guide above ensures you accurately calculate excise taxes for different products, keeping your business compliant with North Carolina’s tax laws.
Wrapping Up
The information in this blog post will get you started on accurately calculating excise taxes for common items. Still, it is best to always contact a tax professional for advice whenever you are in doubt about how to correctly charge excise taxes for your products or services.
If you have any questions in the meantime, Tax Goddess is here to help. All you have to do is submit the questions, and we will have our tax strategists review them for expert insights.
