Final answer:
Excise tax is levied on specific goods and transactions like alcohol and tobacco, while sales tax applies to a wide range of consumer transactions. Use tax is levied on the use of goods consumed in a state where they were not purchased. Examples of excise taxes include taxes on alcohol, air travel, tobacco, and hotel occupancy.
Step-by-step explanation:
The difference between excise tax, sales tax, and use tax lies in what they are levied upon and their scope. An excise tax is restricted to a particular transaction and is a tax levied on the production for sale, or sale, of a certain good. A sales tax covers a multitude of transactions and is imposed as a percentage of firms’ sales, generally on retail sales. A use tax is an ad valorem tax on the use, consumption, or storage of tangible property purchased outside the state but used within the state. Indicating whether these are examples of an excise tax (Federal or state):
- a. Tax on alcohol - Yes
- b. Tax on air travel - Yes
- c. Sales tax - No
- d. Tax on tobacco products - Yes
- e. Hotel occupancy tax - Yes
Excise taxes are often used to either discourage the consumption of demerit goods or to collect revenue on items that are likely to be purchased regardless of the tax. They can be considered regressive because lower-income groups may spend a larger portion of their income on these goods than higher-income groups.