Excise Tax
A tax on a specific good or activity — such as hotel rooms, rental cars, alcohol, tobacco, or fuel — rather than a broad sales tax.
How It Works
Cities use excise taxes to raise revenue from specific activities, often from non-residents (hotel/motel taxes, rental car taxes). These taxes are popular because they export the tax burden to visitors. Common city-level excise taxes include hotel/occupancy taxes (8-15%), prepared food/restaurant taxes, alcohol taxes, and amusement taxes. Revenue from these sources can be volatile, as the 2020 pandemic demonstrated when hotel and entertainment taxes collapsed.
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.
About This Definition
This definition is part of the CitySpend Municipal Finance Glossary — 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.