Sales Tax vs Excise Tax: What's the Difference?
Both taxes can show up on the same receipt, and both are often collected by the seller. That is where the similarity ends. They are charged on different things, they go to different governments, and they are handled differently on a business’s income tax return.
The short version: an excise tax targets a specific item or activity. A sales tax is a general tax on sales. The federal excise taxes covered here are reported to the IRS on Form 720. Sales taxes, which the IRS refers to as state and local general sales taxes, go to the state or local government that imposes them.
Sales tax vs excise tax, side by side
| Point | Federal excise tax | Sales tax |
|---|---|---|
| What it applies to | Only the goods, services, and activities the law lists, such as fuel, air transportation, indoor tanning, heavy trucks, tires, local telephone service, and the PCORI fee | Sales in general, under the rules of the state or local government that imposes it |
| Who it is paid to | The IRS, reported on Form 720 | The state or local government |
| How it is measured | Depends on the tax: per gallon, a percentage of the price, or a flat amount per unit | Set by the state or local government that imposes it |
| Where it applies in the supply chain | Depends on the tax: on fuel removed at a terminal rack, on a manufacturer’s or importer’s sale, on a first retail sale, or on a service | On the sale, under that government’s rules |
| Return | Form 720, the Quarterly Federal Excise Tax Return | The state or local government’s own return |
What makes a tax an excise tax
An excise tax is tied to one kind of thing. Form 720 lists each federal excise tax by an identifying code called an IRS No. Some examples, with the rates printed on the June 2026 form and instructions:
- Per gallon. Gasoline is taxed at $0.184 per gallon (IRS No. 62) and diesel at $0.244 per gallon (IRS No. 60) when removed at a terminal rack. The position holder for that fuel is liable for the tax. See fuel excise tax.
- A percentage of a sale. The heavy truck, trailer, and tractor tax is 12% of the sales price on the first retail sale of each unit (IRS No. 33). See truck excise tax.
- A percentage of a service. Indoor tanning is taxed at 10% of the amount paid (IRS No. 140), and local telephone service at 3% (IRS No. 22).
- A flat amount per person. The PCORI fee is figured per covered life on a health plan (IRS No. 133). See the PCORI fee guide.
Each excise tax also names its own taxable event. For gasoline and diesel at a terminal, it is the removal at the terminal rack. For a heavy truck, it is the first retail sale of the unit. For indoor tanning, it is the amount paid for the service.
Who pays, and who sends it in
With some excise taxes, the business owes the tax itself. A tire manufacturer owes the tax on taxable tires it sells, and the fuel position holder owes the fuel tax. The customer may never see a line for it, because the tax is part of the price. IRS Publication 334 says taxes on gasoline, diesel fuel, and other motor fuels are usually included as part of the cost of the fuel.
With others, the customer pays and the business collects. Publication 510 says the tanning tax is paid by the person paying for the services and collected by the person receiving payment. That looks a lot like sales tax from the counter, but it is still a federal excise tax, and the salon reports it to the IRS on Form 720.
Sales tax works on a similar collect-and-pay-over pattern, but to a different government. Publication 334 describes state and local sales taxes imposed on the buyer, which the seller is required to collect and pay over to state or local governments.
When both taxes are on the same bill
A sale can carry both taxes. The IRS rules keep them apart, so the federal excise tax is not charged on the sales tax.
- Local telephone service. Publication 510 says not to include in the tax base state or local sales or use taxes that are separately stated on the bill.
- Heavy trucks, trailers, and tractors. Publication 510 says to exclude any state or local retail sales tax from the tax base if it is stated as a separate charge from the price, whether the sales tax is imposed on the seller or the purchaser.
Here is how the telephone rule plays out. Say a customer’s bill shows $50.00 for local-only telephone service and a separately stated state sales tax of $3.00. The federal communications tax is 3% of $50.00, which is $1.50. The $3.00 of sales tax stays out of the federal tax base. In both cases the rule turns on the sales tax being shown as a separate charge, so how you bill matters.
How each tax is treated on a business’s income tax return
Publication 334, the IRS tax guide for small business, treats the two differently.
| Situation | What Publication 334 says |
|---|---|
| Excise taxes your business pays | You can deduct on Schedule C all excise taxes that are ordinary and necessary expenses of carrying on your business. |
| Fuel taxes on fuel you use in the business | Usually part of the cost of the fuel. Don’t deduct them as a separate item. You may be entitled to a credit or refund of federal excise tax on fuel used for certain purposes. |
| Sales tax you pay on a purchase | Treat it as part of the cost of the service or property. It is deductible as part of that cost if the cost is deductible, and added to the basis if the property is depreciable. |
| Sales tax imposed on the buyer that you collect | Not income. Don’t deduct it, and don’t include it in gross receipts. |
For individuals, IRS Tax Topic 503 lists state and local general sales taxes, taken in place of state and local income taxes, among the taxes that may be claimed as an itemized deduction, subject to limitations.
Does your business need to file Form 720?
Collecting sales tax doesn’t put a business on Form 720. The Form 720 instructions set one test: you must file if you are liable for, or responsible for collecting, any federal excise tax listed in Form 720, Parts I and II, for the current quarter, or for a prior quarter if you haven’t filed a final return.
If you aren’t sure whether something you make, sell, or provide is on that list, the Form 720 eligibility checker is a quick first test. For how the return itself works, including the four due dates and the split between Parts I and II, see what quarterly federal excise tax is. Short definitions of the terms used here are in the Form 720 glossary.
If you do have a federal excise tax to report, you can file Form 720 online with EasyFile720, an IRS-authorized e-file provider. You create a free account, enter your figures for each IRS No., and the return is checked for common mistakes before you sign and submit. You pay $39.95 per filing when you file.
FAQ
Is excise tax the same as sales tax?▼
No. An excise tax applies only to the specific goods, services, and activities the law lists, and federal excise taxes are reported to the IRS on Form 720. A sales tax is a general state or local tax on sales that is paid over to the state or local government. Form 720 has no line for a general sales tax.
Is excise tax included in the price?▼
Often, yes. IRS Publication 334 says taxes on gasoline, diesel fuel, and other motor fuels are usually included as part of the cost of the fuel. Other excise taxes are collected from the customer by the business, such as the 10% indoor tanning tax and the 3% tax on local telephone service.
Are excise taxes deductible for a business?▼
Publication 334 says you can deduct on Schedule C all excise taxes that are ordinary and necessary expenses of carrying on your business. Fuel taxes are the exception to deducting separately: they are usually part of the cost of the fuel, so you don't deduct them as a separate item.
If my business collects sales tax, do I have to file Form 720?▼
Not because of sales tax. You file Form 720 only if you are liable for, or responsible for collecting, a federal excise tax listed in Form 720, Parts I and II, or if you were in a prior quarter and haven't filed a final return.
File Form 720 online
Create a free account with no credit card and build your return. You pay $39.95 only when you file. EasyFile720 is an IRS-authorized e-file provider, and you get an acknowledgment when the IRS accepts your return.
Sources: Instructions for Form 720 (Rev. June 2026); Form 720 (Rev. June 2026); Publication 510 (Rev. December 2025); Publication 334 (2025); IRS Tax Topic 503, Deductible taxes. General information, not tax advice. Confirm how the rules apply to you with a qualified advisor or the IRS.
