U.S. Not Unified on Consumption Taxes, CCH Notes
(RIVERWOODS, ILL., July 7, 2005) – Anyone traveling throughout the country this summer will find that the states are anything but united in their general sales taxes and in the excise taxes they impose on gas and cigarettes. The rates of these consumption taxes vary widely, according to an annual survey of these taxes by CCH Tax and Accounting (CCH), a leading provider of tax and accounting information, software and services. A national map of tax rates, shows a patchwork of rates in each category, from high and low, or even non-existent, as of July 1, 2005.
“Except for lower cigarette taxes in some tobacco-producing states, there’s not much rhyme or reason to the rates states choose for their consumption taxes,” said CCH State Tax Senior Analyst John Logan. “And even the connection between growing tobacco and low cigarette taxes is beginning to break down.”
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 31 cents in Washington, with most states imposing a basic tax of between 16 and 23 cents per gallon. But many drivers actually pay more than that basic rate when they pull up to the pump.
Taxes and fees related to environmental impact, licenses and inspections may be passed through to consumers in a number of states, so that New York drivers, for example, contribute far more than 8 cents to the state treasury for every gallon of gas they buy. In addition, some states collect regular sales tax on top of the gasoline tax, and in Hawaii, local taxes in each of its counties can more than double the basic 16-cent-per-gallon state rate.
Eleven states and the District of Columbia have higher gas taxes now than a year ago. In many states, at least part of the gas tax rate is linked to the wholesale cost of fuel or the cost of highway construction.
State Sales Taxes Only Part of the Story
Sales taxes are major money-raisers for the states that have them, and are often an important funding source for cities and counties, as well.
Five states – Alaska, Delaware, Montana, New Hampshire and Oregon – impose no sales tax. Of the remaining states, Colorado (2.9 percent) is at the bottom of the scale while three states – Mississippi, Rhode Island and Tennessee – are at the top of the list with a 7-percent rate. More than half of all states with a sales tax charge between 5 and 6 percent.
During the past year, Virginia increased its tax rate from 3.5 to 4 percent, California raised its rate from 6 percent to 6.25 percent and Ohio’s sales tax went up from 5 to 5.5 percent on July 1. Idaho lowered its sales tax to 5 percent from 6 percent and New York trimmed its rate from 4.25 percent to 4 percent. North Carolina’s sales tax was set to decline from 4.5 percent to 4 percent on July 1, but the legislature voted to keep it at the old rate for now.
“Statewide sales tax rates are often only part of the story, though. County, city and other local jurisdictions may add their own sales taxes on top of the state’s,” Logan noted.
These add-on sales taxes can lead to surprises. At first glance, for example, it would seem that a traveler would do better to make purchases in Alabama, with its 4-percent sales tax, than in Mississippi, one of the three highest-tax states. But if you buy an item in Montgomery, Ala., you can end up paying a total of 10 percent in sales tax once a 2.5-percent city tax and 3.5-percent county tax are added to the state’s 4 percent. In Jackson, Miss., by contrast, you’ll be charged only the state’s 7-percent rate. Colorado’s statewide 2.9-percent rate becomes 7.2 percent in the city of Denver, and although Alaska does not have a statewide tax, Juneau imposes a 5-percent sales tax.
Cigarette Taxes Show Greatest Variation
The greatest variation among the states is seen in cigarette taxes. Traditionally, the per-pack tax in tobacco-raising states has been negligible, but in the past year Kentucky and Virginia raised their rates to 30 cents per pack, from 3 cents and 2.5 cents per pack respectively. North and South Carolina are the only states where smokers pay less than a dime a pack in taxes.
Other states raising their per-pack cigarette taxes since July 1, 2004 are Alaska (to $1.60), Colorado (to 84 cents), Montana (to $1.70) Ohio (to $1.25) and Rhode Island (to $2.46).
The majority of states now have rates of over 50 cents per pack and 18 states charge a dollar or more per pack. Rhode Island’s $2.46 per pack is the highest rate. Once again, statewide rates may not be the end of the story: some cities and counties impose additional taxes on tobacco products.
Worth Crossing a State Line?
With so much variance between states, some stand out from their neighbors in having notably higher or lower taxes, potentially inducing travelers to drive an extra mile before filling up or making a purchase.
Smokers traversing Michigan can save over $1 per pack if they buy their cigarettes in Indiana or Wisconsin, or 75 cents if they cross into Ohio. Those traveling along the east coast can save $18.50 per carton if they buy their cigarettes in Delaware rather than New Jersey. It also pays to buy cigarettes in Virginia rather than Washington, D.C. Even after this year’s increase, cigarette taxes are 70 cents per pack lower in the Old Dominion state than in the nation’s capitol.
Rhode Island is distinguished from its neighbors as having the highest taxes in each of the categories tracked by CCH. Travelers in the Northwest save on consumption taxes when they make purchases in Oregon (which has no sales tax) or Idaho rather than in Washington.
Missouri has lower taxes in all three categories than almost all its neighboring states. But travelers can save a penny a gallon if they fill their tanks in Oklahoma instead.
Tempting as these relative bargains may be, Logan has a word of warning for people who cross state lines specifically to buy cheaper cigarettes or avoid sales tax.
“Some states are cracking down on what they perceive to be cigarette ‘smuggling.’ What’s more, all states with sales taxes also have use taxes that apply to residents’ out-of-state purchases, and state governments are getting more aggressive in collecting these taxes.”
As for crossing a state line to buy cheaper gas, Logan sees economic difficulties in addition to any legal ones.
“With gas averaging over $2.00 a gallon nationwide, your car would have to get phenomenal mileage to justify driving any distance just to save a few cents per gallon on the gas tax,” he observed.
About CCH Tax and Accounting
CCH Tax and Accounting (www.tax.cchgroup.com), based in Riverwoods, Ill., is the nation’s premier provider of tax, audit, and accounting information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market leading products are The ProSystem fx® Office, CCH® Tax Research NetWork™, Accounting Research Manager™ and the U.S. Master Tax Guide®. CCH Tax and Accounting is a Wolters Kluwer company.
Wolters Kluwer is a leading multinational publisher and information services company. Wolters Kluwer has annual revenues (2004) of €3.3 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands (www.wolterskluwer.com).
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