Which of the following best describes the difference between an excise tax and a sales tax?

• A. An excise tax is a percentage of the total sale price, while a sales tax is a fixed amount per unit sold.
• B. An excise tax is levied on specific goods or services, while a sales tax is applied broadly to most goods and services at the point of sale.
• C. An excise tax is paid only by consumers, while a sales tax is paid only by producers.
• D. An excise tax is collected by local governments, while a sales tax is collected by the federal government.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definitions of both taxes. An excise tax is typically a tax imposed on specific goods or services, often per unit or quantity, such as gasoline or cigarettes.
2. Step 2: Recognize that a sales tax is generally a percentage tax applied broadly to most goods and services at the point of sale, affecting the total purchase price.
3. Step 3: Compare the scope of application: excise taxes target specific products, while sales taxes apply to a wide range of goods and services.
4. Step 4: Consider who pays the tax and how it is collected. Both taxes can be paid by consumers, but the key difference lies in their application and coverage rather than who pays or collects them.
5. Step 5: Conclude that the best description differentiates excise taxes as specific to certain goods or services, whereas sales taxes are broad-based and applied at the point of sale.