What is a federal excise tax?

Federal excise taxes are taxes imposed by the federal government on specific goods and services that are often included in the price of the product, according to the Internal Revenue Service. Excise taxes are commonly applied to products such as gas, cigarettes and alcohol.

States also impose excise taxes on certain products, but only products purchased in that state are affected. Businesses also pay excise taxes on commodities such as environmental products, communication, air transportation, the purchase of trucks and trailers and foreign insurance, according to About.com. These purchases are reported on form 720 and the taxes are paid quarterly.