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What To Know About Auditing

Introduction

Taxes come in all shapes and sizes, each with a different purpose and effect on the economy. One of these taxes is the excise tax, a tax levied on specific products or activities. The excise tax has been around for centuries and has been used to fund wars, promote healthy lifestyles and finance various government projects. In this guide, we will explore what an excise tax is, how it works, its history, who pays it and its impact on the economy.

What is an Excise Tax?

An excise tax is a tax on specific goods and services, typically those that are considered harmful or non-essential. Excise taxes are often referred to as sin taxes because they are typically imposed on activities that are considered harmful to the individual or society as a whole. Examples of goods that may be subject to excise taxes include tobacco, alcohol, gasoline, and firearms.

Excise taxes are typically imposed at the manufacturer or retailer level. This means that the business that produces or sells the product is responsible for paying the tax to the government. However, the cost of the tax is often passed on to the buyer in the form of a higher price for the product.

How Does an Excise Tax Work?

Excise taxes are often specific to a particular product or activity. This means that the tax rate may vary depending on the product or activity being taxed. For example, the tax rate on tobacco products may be higher than the tax rate on alcohol. Additionally, the tax rate on a particular product may change over time as economic or political circumstances change.

The government imposes excise taxes for a number of reasons. One reason is to discourage the consumption of harmful goods and services. By making these products more expensive, the hope is that people will consume less of them. Additionally, excise taxes can be used to raise revenue for the government. This revenue can be used to finance various government programs and initiatives.

Excise taxes can be collected in several ways. In some cases, the tax may be included in the price of the product at the time of sale. In other cases, the business may be required to submit periodic tax reports and payments to the government. Failure to pay the excise tax can result in fines, penalties, and in extreme cases, criminal charges.

History of Excise Taxes

Excise taxes have been around for centuries. One of the earliest known examples of an excise tax was imposed by the Roman Empire on the production of soap. In England, excise taxes were first introduced in the 17th century as a way to raise revenue to fund the country’s wars.

In the United States, excise taxes were first introduced during the Civil War as a way to fund the war effort. At that time, excise taxes were levied on a number of goods, including tobacco, matches, and alcoholic beverages.

Over time, excise taxes have been used for a variety of purposes. In the early 20th century, excise taxes were used as a way to promote healthy lifestyles. Taxes were levied on products such as tobacco and alcohol in an effort to discourage the use of these products. In more recent times, excise taxes have been used to address environmental concerns. For example, taxes on gasoline and other petroleum products have been used to encourage people to use more environmentally friendly transportation options.

Who Pays Excise Taxes?

Excise taxes are typically paid by the businesses that produce or sell the goods or services that are subject to the tax. However, the cost of the tax is often passed on to the consumer in the form of higher prices. This means that anyone who purchases a product that is subject to an excise tax is, in effect, paying the tax.

The impact of the excise tax on the consumer will depend on a number of factors, including the elasticity of the demand for the product. If demand for the product is highly elastic, meaning that people are price sensitive and will look for alternative products if the price is too high, then the impact of the tax on the consumer may be minimal. However, if demand for the product is inelastic, meaning that people are less price sensitive and will continue to purchase the product even if the price is high, then the impact of the tax on the consumer may be significant.

Examples of Excise Taxes

There are a number of products that are subject to excise taxes. Some of the most common examples include:

Alcohol: Federal excise taxes on distilled spirits, beer, and wine are among the most significant excise taxes in the United States. According to the federal government, alcohol excise taxes raised over $9 billion in revenue in 2019.

Tobacco: Excise taxes on tobacco products are another significant source of revenue for the federal government, raising over $12 billion in revenue in 2019. These taxes are designed to discourage the use of tobacco products, which are known to be harmful to health.

Gasoline: Federal and state excise taxes on gasoline are used to fund transportation infrastructure projects. In 2021, the federal gasoline tax rate was 18.4 cents per gallon.

Firearms: Excise taxes on firearms and ammunition are used to fund wildlife conservation and habitat restoration projects. In 2019, these taxes raised over $700 million in revenue.

Impact of Excise Taxes on the Economy

Like all taxes, excise taxes have an impact on the economy. The impact of excise taxes on the economy will depend on a number of factors, including the size of the tax, the elasticity of demand for the product, and how the revenue from the tax is used.

One potential impact of excise taxes is that they can increase the price of the goods and services that are subject to the tax. This, in turn, can lead to a reduction in demand for those products. For example, if the government were to increase the excise tax on cigarettes, this could make cigarettes more expensive and lead to a reduction in the number of people who smoke.

However, the impact of excise taxes on demand will depend on how price-sensitive consumers are to changes in price. If consumers are highly price-sensitive, then the impact of the tax on demand may be significant. However, if consumers are less price-sensitive, then the impact of the tax on demand may be minimal.

Another potential impact of excise taxes is the effect they can have on businesses. Businesses that produce or sell goods or services that are subject to excise taxes may face higher costs as a result of the tax. This, in turn, could lead to lower profits, reduced investment, and even job losses.

Finally, the revenue from excise taxes can be used to fund various government programs and initiatives. This can have both positive and negative impacts on the economy. On the one hand, government spending can stimulate economic growth and create jobs. On the other hand, if the government spends the money inefficiently, this could lead to waste and reduce the impact of the tax on the economy.

Conclusion

Excise taxes are a form of taxation that has been used for centuries as a way to generate revenue, discourage harmful behavior, and promote positive social and environmental outcomes. While they can be effective for achieving these goals, they also have potential negative impacts on the economy, businesses, and individuals. It is up to policymakers to balance these impacts and design tax policies that maximize the social and economic benefits of excise taxes while minimizing the negative impacts.


An audit when a company or an individual’s financial records are thoroughly looked over to assure that they are accurate and truthful.  When a company or a person has is faced with auditing, illegal acts such as embezzlement, fraud, or misuse of funds can be discovered.

Audits are done without any judgment. Normally a company or person will hire an outside company to complete the audit therefore now bias can occur. In some large companies, with a thorough and well-staffed accounting department, the audit may be completed without outsourcing to a different company.

Whether an audit is completed by the company or by an outsourced company, it is common for a neutral party to be used to approve the records that where discovered.  During any type of audits, all finical records must be pulled including: bank statements, payroll documents, and tax information. These documents will be thoroughly reviewed.

Often audits will uncover a mistake done by an accounting department; however, in other audits harmful and highly illegal records and acts may be discovered. Audits can also determine whether a company is facing bankruptcy.

Any issues uncovered by the audit must be resolved by the company or the individual. If errors cannot be fixed due to a lack of money, then the company or the individual may face bankruptcy proceedings so that major creditors can be reimbursed the money they are owed. All auditing results are documented and turned into different government offices. Often any lending companies that the company or person have been using may also receive records of the audit as well as its results.