It is important to know the ways different taxes might affect your cooperative. An excise tax might affect your cooperative in different ways depending on your circumstances.
Key Considerations on Excise Taxes for Cooperatives
Definition: In general, an excise tax is a tax imposed on the sale of specific goods or services, or on certain uses. Federal excise tax is usually imposed on the sale of things like fuel, airline tickets, heavy trucks and highway tractors, indoor tanning beds, tires, tobacco, and other goods and services. Excise taxes are taxes that are imposed on various goods, services, and activities. Such taxes may be imposed on the manufacturer, retailer, or consumer, depending on the specific tax. The goal of the tax is often to discourage the consumption of that good or to make up for the associated social cost of the good.
Unlike traditional sales taxes—which apply to broad swaths of commerce—excise taxes target specific items such as fuel, tobacco, and firearms.
- Increase in Costs: If a cooperative produces or uses these goods or services, it may have to pay higher prices due to the excise taxes. For example, if a cooperative makes products that need a lot of fuel to transport, they might have to pay extra money in excise taxes for that fuel. This extra money they have to pay makes it more expensive for them to produce and sell their products, which means they might have to charge more for their products to make up for the extra costs.
- Competitive disadvantage: If some of the goods or services that a cooperative produces or uses are subject to an excise tax, but its competitors are not, then the cooperative may be at a competitive disadvantage. Meaning if their competitors don’t have to pay those taxes, then it’s harder for the cooperative to compete with them. This could make it harder for the cooperative to compete in the market and could lead to lower profits.
- Potential Benefit: Sometimes, excise taxes can also be used to encourage good behavior, like if the government wants people to use more environmentally friendly products. If a cooperative is engaged in such practices, it may be eligible for certain tax incentives or benefits, which could help it to reduce costs or increase revenues.
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