Do you hate buying a glass of wine and having to pay a tax over and above what you would pay on a soft drink? How about the special tax you pay when you buy a cigarette or cigar? These are called excise taxes and have not been mentioned in the tax reform discussions by the legislature in Raleigh, but they have a long history in North Carolina.
In the 1790s, farmers would use their leftover grain and corn to make whiskey, which they would then use as a medium of exchange. Congress (mainly Alexander Hamilton) wanted to force them to pay a new tax to fund repayment of the war debt from the American Revolution. When federal officials tried to collect the tax, local farmers revolted and the Whiskey Rebellion began. This conflict did not end until Thomas Jefferson came to power and repealed the tax after his election in 1800. Over time, other excise taxes were implemented on specific items and continue today.
Some might question, what is the difference between an excise tax and a sales tax. Excise taxes started early in our country’s history as luxury taxes, first on whiskey and horse carriages. The items considered are taxed based on quantity purchased, a flat amount per item. A sales tax is an ad valorem tax, a set percent added onto the price of an item when purchased. The percent added is based solely on the price of the item purchased.
In North Carolina, we have our fair share of excise taxes. In 2009, the legislature increased the excise taxes on many tobacco and alcohol products. This increase can be attributed to the budget shortfall following the 2008 recession. This proved hard for North Carolina, the leading tobacco growing and manufacturing state in the country. The first North Carolina tobacco excise tax came in 1969 and since then has only been raised to help fund major budget shortfalls.
Currently we pay federal and a state excise taxes on specific goods considered to be luxuries or bad for general health. Modern society believes certain activities are bad for the public and that, by taxing the product, the government can prevent people from purchasing as much of the product. In addition to the federal and state excise taxes, in North Carolina, some local municipalities also impose their own taxes on these items. Below I list some of the well-known excise taxes in North Carolina along with the state’s rank compared to the rest of the country as calculated by the Tax Foundation.
- Cigarette Tax (per 20-pack), $0.45, 44th highest
- Liquors (per gallon), $13.02, 5th highest
- Table Wine (per gallon), $0.79, 25th highest
- Beer (per gallon), $0.53, 9th highest
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