Question

how is an excise tax different from a sales tax?
an excise tax is not deductible
an excise tax applies to specific products.
an excise tax applies only to imported goods.
an excise tax is an indirect tax.

Explanation:

To determine the difference between an excise tax and a sales tax, we analyze each option:

• Option 1: Both excise and some sales taxes may have deductibility rules, so this is not a defining difference.
• Option 2: Excise taxes are imposed on specific goods (like alcohol, gasoline), while sales taxes are more general (applied to most retail sales). This is a key difference.
• Option 3: Excise taxes apply to domestic - produced specific goods too, not just imported ones.
• Option 4: Both excise and sales taxes are indirect taxes (paid by consumers but collected by businesses), so this is not a difference.

Answer:

B. An excise tax applies to specific products.