An excise is a tax levied exclusively on goods, services, or activities which are considered privileged or luxurious. Excises may not encumber “essential” items, or anything directly connected with the exercise of an unalienable right, such as the right to practice one’s religion or earn a living. Adam Smith, whose work, The Wealth of Nations, functioned as the economic bible of America’s Founding Fathers, defined “luxurious” items as those which are not necessary to sustaining life, and thus which “every man is allowed to buy or not buy as he chuses.” [Bk. V, Ch. 2, Pt. 2] Such items are legitimate objects of excise. On the other hand, he defined “necessary” items as those “which are indispensably necessary for the support of life,” including those which “the custom of the country renders it indecent for creditable people…to be without.” In modern America, items which are “indecent” for “creditable people to be without" include food, clothing, housing, transportation, medicine, health care, arms for self-defense, phone service, sundries, education, a job in the private sector, etc. These items and activities are not qualified to be taxed under an excise.
Consequently, federal excises in the United States currently tax only certain luxury items and licensed activities, such as liquor, tobacco, luxury automobiles, aviation permits, and certain government-connected activities.
The assessment of an excise is often (but not always) triggered by the transfer or sale of a certain commodity. It’s important to understand, however, that an excise is defined by what it taxes—privilege and luxury—not by how or when it is triggered. In 1911, the Supreme Court clarified this in Flint v. Stone Tracy Co.: "Excises are taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges... the requirement to pay such taxes involves the exercise of ’privileges '."
In addition to U.S. Supreme Court rulings, such as the one cited above, state and federal courts have consistently ruled that an excise only taxes the exercise of a privileged activity or the purchase of a luxury (special) commodity:
- “The term ‘excise tax’ is synonymous with ‘privilege tax’, and the two have been used interchangeably." (American Airways v. Wallace, 57 F.2d 877, 880)
- “Whether a tax is characterized in a statute imposing it, as a privilege tax or an excise tax is merely a choice of synonymous words, for an excise tax is a privilege tax.” Foster & C. Co. v. Graham, 154 Tenn. 412, 285 S.W. 570, 47 ALR 971.
- “An ‘excise tax’ is often used synonymous with ‘privilege’ or ‘license tax‘.” Shannon v. Streckus Steamers, 279 Ky. 649, 131 S.W.2d 833, 838.
A Recent -- But Misleading -- Definition
Recently, there has been a concerted effort by the Left to reinterpret an excise as an “event tax”—that is, a tax levied on an “event” solely by virtue of the fact that an event or transaction has occurred. This definition is without foundation. The so-called “event” definition was completely unknown to the drafters of the Constitution, and has never been recognized by the Supreme Court of the United States or by any other court. Were that definition allowed, any “event” could theoretically be taxed as an excise, and the Constitutional distinction between Direct taxes (requiring apportionment) and Indirect taxes and excises (requiring uniformity) would collapse. In that case, almost any commodity or activity could be taxed by government, and nothing would remain in the Constitution to safeguard the private wealth of the People.
For example, if the “event” definition of excise were permitted, Congress could levy a tax on attending church, or issuing a news report, or going to school, because each of these is an “event.” Congress would essentially gain unlimited taxing authority—and thus unlimited authority—over the People. This sort of a construct is anathema to the American experience, but typical of Marxist and Fascist political thought.
Fortunately, a proper understanding of the meaning of "excise" assures us that U.S. courts would likely rule any tax on these kinds of activities unconstitutional because these “events” involve the exercise of unalienable rights, not privileges. "Events" like these are therefore not subject to Indirect taxes (of which the excise is a type).
Excises and the Constitution
From the above discussion, it should be clear that an excise is an Indirect tax in the Constitutional sense. It is paid on a voluntary or indirect basis, because it taxes only things not required to sustain life or to exercise an unalienable right. In harmony with the intent of the Founding Fathers and the Fundamental Law of the United States, excises can be avoided simply by not buying the luxury item in question or participating in the privileged activity.
Scholars of American history widely agree that Adam Smith and Alexander Hamilton were the leading authorities on economic theory at our nation’s founding. The following excerpts clearly reveal Smith’s and Hamilton’s views on the meaning of “excise,” thus intimating the Constitutional meaning of the term:
Adam Smith - The Wealth of Nations
1. Excises may only tax luxuries
"The duties of excise are imposed briefly upon goods of home produce destined for home consumption. They are imposed only upon a few sorts of goods of the most general use. There can never be any doubt either concerning the goods which are subject to those duties, or concerning the particular duty which each species of goods is subject to. They fall almost altogether upon what I call luxuries, excepting always the four duties above mentioned, upon salt, soap, leather, candles, and, perhaps, that upon green glass." [Book V, Ch. 2, Para. V.2.164]
2. Excises tax only a few items, not all items
"In order that the greater part of the members of any society should contribute to the public revenue in proportion to their respective expence, it does not seem necessary that every single article of that expence should be taxed. The revenue which is levied by the duties of excise is supposed to fall as equally upon the contributors as that which is levied by the duties of customs, and the duties of excise are imposed upon a few articles only of the most general use and consumption." [Book V, Ch. 2, Para. V.2.176]
3. The masses should not pay excises on essential items
"It must always be remembered, however, that it is the luxurious and not the necessary expence of the inferior ranks of people that ought ever to be taxed." [Book V, Ch. 2, Para. V.2.189]
4. Excises are generally repugnant, and should be limited in scope
"Taxes upon luxuries generally are, and always may be, paid piecemeal, or in proportion as the contributors have occasion to purchase the goods upon which they are imposed… They offend in every respect against the fourth [maxim of fair taxation.]" [Book V, Ch. 2, Para. V.2.205]
5. Any tax on a necessity is a direct tax, as opposed to an excise
"It is thus that a tax upon the necessaries of life operates exactly in the same manner as a direct tax upon the wages of labour… [Such taxes are] absurd and destructive." [Bk. V, Ch. 2, V.2.150 and 135]
Alexander Hamilton - The Federalist Papers
1. Excises can only be placed on objects proper for such a tax
"There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects." [No. 21]
2. Excises must be confined to a limited number of special items
"In America, it is evident that we must a long time depend for the means of revenue chiefly on such duties. In most parts of it, excises must be confined within a narrow compass. The genius of the people will ill brook [not tolerate] the inquisitive and peremptory spirit of excise laws. The pockets of the farmers, on the other hand, will reluctantly yield but scanty supplies, in the unwelcome shape of impositions on their houses and lands; and personal property is too precarious and invisible a fund to be laid hold of in any other way than by the imperceptible agency of taxes on consumption…
"In this country, if the principal part [of revenues] be not drawn from commerce, it must fall with oppressive weight upon land. It has been already intimated that excises, in their true signification, are too little in unison with the feelings of the people, to admit of great use being made of that mode of taxation; nor… are the objects proper for excise sufficiently numerous to permit very ample collections in that way." [No. 12]
3. Excises tax particular goods, not all goods
"They would not, therefore, in this mode alone contribute to the public treasury in a ratio to their abilities. To make them do this it is necessary that recourse be had to excises, the proper objects of which are particular [privileged, luxurious] kinds of manufactures." [No. 35]