Excise Tax

How It Works

Cities use excise taxes to raise revenue from specific activities, often from non-residents, allowing elected officials to "export" a portion of the tax burden to visitors. Common city-level excise taxes include hotel/occupancy taxes (typically 8-15%, with New York City hotel tax at 14.75% plus $2 per room per night), prepared food and restaurant taxes (1-2% on top of sales tax in cities like Chicago), alcohol and tobacco taxes (Chicago cigarettes at $1.18 per pack plus Cook County and state), rental car taxes (often 10-20% including stadium surcharges), amusement and ticket taxes (Chicago at 9% for live entertainment), and parking taxes (Chicago at 22% for weekday parking). Federal excise taxes on fuel under IRS Subtitle D are typically pre-empted from local taxation, though some states share fuel tax revenue with cities through formula distributions reported as intergovernmental revenue. Revenue from excise taxes can be volatile, as the 2020 pandemic demonstrated when hotel, restaurant, rental car, parking, and entertainment tax receipts collapsed 40-80% year-over-year in major cities. Per Census ASG finance data, excise tax typically generates 5-15% of general fund revenue in tourist-dependent cities such as Las Vegas, Orlando, New Orleans, and Honolulu, versus under 3% in non-tourist cities. Excise revenue concentration is captured in the CitySpend revenue diversity calculation (10% of the Fiscal Health Score), with tourism-dependent cities scoring higher on diversity when their mix spans hotel, restaurant, and retail sales rather than concentrated in a single category.

Related Terms

• Sales Tax, A consumption tax collected on retail purchases. Many cities levy a local sales tax on top of state and county rates.
• Revenue Diversity, The degree to which a city's revenue comes from multiple sources (property tax, sales tax, fees, grants) rather than being concentrated in a single stream.