Noah Vinter
Taxes on tobacco, alcohol, and gas are levied by state and local governments in the United States. These taxes are selective sales taxes, often referred to as sin taxes, and are levied on the purchase of tobacco, alcohol, and gasoline. State and local governments collected a combined $19 billion in revenue from tobacco taxes in 2021, with cigarettes being the primary source of this revenue. Alcohol taxes are levied per unit sold (i.e. per gallon of beer, wine, or liquor), with some states also imposing special sales taxes on the final purchase price. Gas taxes are levied in various ways, including per-gallon excise taxes, excise taxes on wholesalers, and general sales taxes on the purchase of gasoline. California had the highest gas tax rate in 2024 at 68.1 cents per gallon.
| Characteristics | Values |
|---|---|
| Type of tax | Excise tax, sales tax |
| Taxing body | State and local governments |
| Goods taxed | Tobacco, alcohol, gasoline |
| Purpose | To generate revenue, discourage use of certain goods |
| Taxing mechanism | Per unit, per volume, percentage of price |
| Tax collection | From producers, wholesalers, distributors, retailers |
| Tax incidence | Passed on to consumers |
| Examples | Cigarette tax, alcohol tax, gasoline tax |
| Amount | Varies by state and locality |
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What You'll Learn
- Alcohol taxes are levied per gallon, with the highest rates in Tennessee, Alaska, and Hawaii
- Taxes on tobacco products vary by type, with cigarettes taxed per pack, and other tobacco products as a percentage of price
- Gas taxes are levied per gallon, with the highest rates in California, Illinois, and Pennsylvania
- State and local governments collected $53 billion in revenue from motor fuel taxes in 2021
- Beer taxes vary by state, with some states also charging additional license taxes for manufacturing, importing, and retailing
Alcohol taxes are levied per gallon, with the highest rates in Tennessee, Alaska, and Hawaii
Alcohol taxes are levied as selective sales taxes on the purchase of alcohol. State and local governments collected a combined $8.2 billion in revenue from alcohol taxes in 2021, with most of the tax revenue (83% in 2021) coming from state taxes. Alcohol taxes are levied per gallon, with the tax rate depending on the type of alcohol. Liquor is taxed at a higher rate than wine, and wine is taxed at a higher rate than beer. In some states, tax rates also vary based on the location of the seller and the quantity produced.
In addition to the per-gallon excise tax, some states and localities levy a special sales tax on the final purchase price of alcohol. For example, the District of Columbia levies both per-gallon taxes on beer ($0.09), wine ($0.30), and liquor ($1.50), which are built into the retail price of alcohol, and a 10.25% alcohol sales tax on the final purchase price.
As of 2025, Tennessee has the highest tax burden on beer at $1.287 per gallon, followed by Alaska at $1.07 per gallon, and Hawaii at $0.93 per gallon. Wyoming has the lowest tax burden on beer at $0.019 per gallon, followed by Missouri and Wisconsin at $0.06 per gallon.
As of January 2023, per-gallon tax rates on beer ranged from $0.02 in Wyoming to $1.29 in Tennessee, per-gallon tax rates on wine ranged from $0.20 in California and Texas to $2.50 in Alaska, and per-gallon tax rates on liquor ranged from $1.50 in the District of Columbia and Maryland to $14.27 in Washington.
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Taxes on tobacco products vary by type, with cigarettes taxed per pack, and other tobacco products as a percentage of price
In the United States, tobacco is taxed by federal, state, and local governments. State and local governments collected a combined $19 billion in revenue from tobacco taxes in 2021, with state taxes accounting for 98% of tobacco tax revenue.
Different tobacco products are taxed in different ways. Cigarettes are taxed per pack, while other tobacco products, such as chewing tobacco, are typically taxed as a percentage of the price. This percentage can be calculated based on the wholesale or manufacturer's price, and it varies by state. For example, South Carolina taxes "other tobacco products" at 5% of the manufacturer's price, while Minnesota taxes them at 95% of the wholesale price. Some states, like Alabama, Arizona, Georgia, and Texas, tax little cigars separately with taxes ranging from $0.020 to $0.4405 per pack.
Vaping products are also taxed, and as of January 2023, 30 states and the District of Columbia had implemented these taxes. Vaping taxes are either per ounce of vaping liquid or as a percentage of the price, depending on the product and the state.
Tobacco taxes are sometimes called corrective or "sin taxes" because they are used in part to discourage tobacco use and enhance public health. Similarly, alcohol taxes are also selective sales taxes that are levied in part to discourage alcohol consumption due to its associated costs to the consumer and the general public, such as increased healthcare costs.
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Gas taxes are levied per gallon, with the highest rates in California, Illinois, and Pennsylvania
Gas taxes are levied per gallon, and some states charge more than twice the federal rate of 18.4 cents per gallon. The federal tax on special fuel like diesel is 24.4 cents per gallon, but diesel taxes in several states are much higher.
California has the highest gas tax rate in the country at 68.1 cents per gallon, or 59.6 cents per gallon as of 2025. The revenue from this uptick in the gas rate will be directed toward various public health and safety programs in California. The state also has the highest average price per gallon of regular gasoline at about $4.79. California government agencies estimate that around 12 cents are passed through from the Low Carbon Fuel Standard (to increase to 47 cents in 2025) and 27 cents from cap-and-trade carbon policies, which further drives up prices.
Illinois is a close second, with a state tax on gas of 67.1 cents per gallon as of 2025, up from 66.5 cents per gallon in 2024. Pennsylvania is third, with a rate of 58.7 cents per gallon in 2024, and 57.6 cents per gallon in 2025.
Gas taxes are intended to serve as user fees and pollution deterrents, and the revenue is often used for highway repair and maintenance, as well as other government infrastructure projects. These taxes are usually remitted by producers and distributors during wholesale transactions, but the cost is then incorporated into the final retail price and ultimately paid by the consumer.
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State and local governments collected $53 billion in revenue from motor fuel taxes in 2021
Motor fuel taxes are levied on gasoline, diesel, and gasohol (a blend of ethanol and unleaded gasoline). In 2021, state and local governments in the United States collected approximately $53 billion in revenue from motor fuel taxes, a significant increase from the $9.16 billion collected in 1977. This revenue accounted for 26% of highway and road spending in 2021, with toll facilities and other street construction and repair fees providing an additional 10%.
Most states levy taxes per unit of fuel purchased, typically per gallon. However, 22 states and the District of Columbia tie their motor fuel tax rate to variables such as the price of gasoline, inflation, or state population growth. Nearly all motor fuel tax revenue (97%) in 2021 came from state motor fuel taxes.
In addition to motor fuel taxes, state and local governments also collect revenue from other sources related to transportation. For example, they generated $19.1 billion in toll highway charges in 2020, a 132% increase from 2000. States like Oregon and Utah are piloting programs to tax vehicle miles travelled (VMT) instead of gasoline purchased.
State and local governments also tax other goods, such as tobacco and alcohol. In 2021, they collected $19 billion in revenue from tobacco taxes and $8.2 billion from alcohol taxes. These taxes are often called "sin taxes" as they aim to discourage the consumption of these products due to their associated costs to the consumer and the general public, such as increased healthcare expenditures.
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Beer taxes vary by state, with some states also charging additional license taxes for manufacturing, importing, and retailing
Beer taxes vary significantly across states in the US. Beer taxes are the single most expensive ingredient in beer, with state and local beer taxes contributing more to the final price than labour and raw materials combined. In January 2023, per-gallon tax rates on beer ranged from $0.02 in Wyoming to $1.29 in Tennessee. Alaska and Kentucky also have notably high beer tax rates.
Sixteen states have beer excise tax rates that vary based on alcohol content, place of production, size of container, or place purchased. For example, in Idaho, beer containing more than 4% ABV is considered "strong beer" and is taxed like wine at $0.45 per gallon. Virginia has a different tax per bottle for containers up to 7 ounces, 12 ounces, and greater than 12 ounces.
In addition to excise taxes, some states also charge license taxes for manufacturing, importing, and retailing. These license taxes are typically levied on the producer or seller of the product during the wholesale transaction, but the cost is usually incorporated into the final retail price and ultimately paid by the consumer.
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Frequently asked questions
Alcohol taxes are selective sales taxes levied on the purchase of alcohol. Most states levy the tax as an amount per unit sold (i.e., per gallon of beer, wine, or liquor). In addition to the per-gallon excise tax, some states and localities also levy a special sales tax on the final purchase price of alcohol.
State and local governments levy taxes on various tobacco products, including cigarettes, chewing and smokeless tobacco, and vaping products. Different tobacco products are taxed in different ways: cigarettes are taxed per pack, other tobacco products are typically taxed as a percentage of the price, and vaping products are taxed either per ounce of vaping liquid or as a percentage of the price.
States levy taxes on fuel in a few different ways, including sales taxes, excise taxes per gallon purchased at the pump, and taxes on wholesalers or retailers, which are generally passed on to consumers via increased prices. The gas tax is meant to function as a user fee to fund the cost of roads and other government infrastructure projects.
