Excise taxes are taxes paid on the purchase of specific types of goods. The tax is typically included in the price of the item, and the business owner, distributor, manufacturer, or wholesaler is responsible for paying the excise tax to the government. Excise taxes are most often used on products that are considered harmful or undesirable, in an attempt to prevent or reduce their use. The most common excise taxes are placed on motor vehicle fuel, cigarettes and tobacco products, and alcoholic products.

Excise taxes are collected on either a per unit basis or a percentage basis. The per unit basis imposes a tax per unit of product sold (ex. per pack of cigarettes). Imposing the excise tax on percentage means that the taxes are based on a percentage of the value of the product. When the tax is based on percentage, the excise tax will increase as the price of the product increases.

Tax on Motor Fuel

There is a tax on all gasoline used to power motor vehicles. The tax is generally imposed on the first licensed distributor who receives the gasoline to sell in Minnesota. In return, the cost of the tax is built into the price of gas per gallon that consumers purchase.

There are a few types of gasoline. E85 gasoline is that is a blend of 85% ethanol and 15% gasoline. It is one of the most popular fuel alternatives to standard gasoline. When a distributor receives E85 gasoline, he is charged at a rate of 17.75 cents per gallon. The second type of gasoline is M85 gasoline. M85 gasoline is a blend of 85% methanol and 15% gasoline. This type of gasoline is used in most flexible fuel vehicles; however, car manufactures have directed their focus at making more ethanol based flexible fuel vehicles. When a distributor receives M85 gasoline, he is charged at a rate of 14.25 cents per gallon of gasoline. For all other types of gas other than E85 and M85, a distributor is charged at a rate of 25 cents per gallon. The tax imposed on distributors of gasoline is established in Minnesota Statute § 269A and the rates are clearly defined in § 296A.07.

Tax on Cigarettes and Tobacco Products

Cigarettes and tobacco products are also subject to an excise tax. Distributors and retail sellers of these products are responsible for paying the tax once it is collected from consumers. With cigarettes, the excise tax is charged by the pack. Each pack in Minnesota imposes a tax of $1.23 per pack bought (each pack containing roughly 20 cigarettes). Although this may seem like a steep tax, there are several other states that charge more than Minnesota per pack of cigarettes. The tax being charged on a per pack basis means that the tax will not increase when the price of cigarettes increases. The tax will remain at $1.23.

Tobacco products, on the other hand, are priced on a percentage basis. A certain percent of the wholesale price of the product is charged as tax. Currently in Minnesota, the tax for tobacco products is 35% the price of the product. Because the tax is based on the price of the product, when tobacco product prices are raised, so will the tax imposed on those products.

Tax on Alcohol

Alcohol is yet another product subject to an excise tax. Such a tax is imposed on manufacturers or wholesalers of the alcoholic products. Like the tax on cigarettes, the tax on alcohol is a fixed dollar amount per unit of alcohol. Alcohol is measured either by the barrel or by the liter. Oftentimes the amount of alcohol is calculated in gallons. There are 31 gallons in one barrel.

The rates imposed on alcohol vary by the type of alcohol, with lower rates for beer, and higher rates for wine and hard liquor, or distilled spirits. It is important to note that how much tax a manufacturer or wholesaler must pay is based on volume of alcohol, not the alcoholic content of the beverage. The following is a list of the current rates for the taxes imposed on liquor:

Type of Alcohol

Price per gallon

Price per liter

Beer < 3.2% alcohol



Beer > 3.2% alcohol



Cider < 7% alcohol



Low alcohol dairy cocktails



Wine < 14% alcohol



Wine > 14% alcohol



Sparkling Wine



Distilled Spirits



Again, because there is a fixed tax amount, the amount of tax will not increase with the price of the alcohol. Unfortunately, this means that expensive, high-end alcohol is taxed at the same rate as low quality alcoholic beverages.

There are three exemptions to having to pay the alcohol excise tax. These include the purchase of sacramental wine, products that are sold to food processors and pharmaceutical companies, and the first 25,000 barrels of beer produced by a brewery with an annual production of less than 100,000 barrels of beer.


In certain situations, you may be a distributor, wholesaler, or retailer that is liable for paying excise taxes to the government. You should be aware that in most cases the excise tax is built into the product the consumer purchases, but that you are responsible for paying that tax to the government in return. Understanding taxes and tax obligations can be a complicated matter, and it is in your best interest as a business owner to meet with an attorney or tax specialist in order to fully understand your tax obligations.

Contact an attorney in this area