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CCH Says For Many Consumers, Taxes Up the Price
Annual CCH Survey of Gas, Sales and Cigarette Taxes
(RIVERWOODS, ILL., July 14, 2008) – The taxes Americans pay as consumers – in retail stores, at the gas pump or for cigarettes – are trending higher, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). As part of its annual survey of consumption taxes, CCH takes a look at gasoline, cigarettes and sales tax. A national map of tax rates shows just how varied the rates are in each category across the United States, with rates that range from high to low, or even non-existent, as of July 1, 2008.
“Sales tax revenues are an important part of most state budgets, and gas taxes are the source of funds for state road building and maintenance, along with the federal matching funds they bring in,” said CCH State Tax Analyst Dan Schibley, JD. “This poses a quandary for states that may want to lower these tax rates in the current hard economic times, especially when sales tax revenues are already weakening because people are buying less.”
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 37.5 cents in Washington, which raised its gas tax 1.5 cents from last year. In half the states and the District of Columbia, the rate is 20 cents per gallon or less. 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 also be passed through at the pump to consumers in a number of states. New York drivers, for example, contribute considerably more to the state treasury than their state’s 8-cent gas tax for every gallon of gas they buy. In Hawaii, local taxes in each of its counties can more than double the basic 17-cent-per-gallon state rate.
Eight states have higher gas taxes now than a year ago, with Minnesota’s 2-cent hike the largest increase. Three states lowered their rates. Nebraska and Rhode Island knocked one penny off their previous per-gallon rate while Tennessee lowered its rate by 1.4 cents to 20 cents per gallon. 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.
Cities, Counties Add on to State Sales Taxes
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 is at the bottom of the scale with 2.9 percent while five states – Indiana, Mississippi, New Jersey, Rhode Island and Tennessee – are at the top of the list with a 7-percent rate. Among states with a sales tax, more than half have rates of 5.5 percent or more.
The sales tax rate has risen by one percent in Indiana, Iowa and Maryland. Utah is the only state to lower its sales tax rate, by .10 percent to 4.65 percent.
But statewide sales tax rates are often only part of the story as county, city and other local jurisdictions may add their own sales taxes on top of the state’s.
These tacked-on sales taxes can add up. At first glance, for example, it would seem that someone would do better to make purchases in Alabama, with its 4-percent sales tax, than in Mississippi, one of the five highest sales-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 rate. In Jackson, Miss., by contrast, you’ll be charged only the state’s 7-percent rate. Colorado’s statewide 2.9-percent rate becomes 7.72 percent in the city of Denver, and although Alaska does not have a statewide tax, Juneau imposes a 5-percent sales tax. Chicago imposes a nation-high 10.25-percent rate, once county, mass transit and city levies are added to Illinois’ basic 6.25-percent sales tax.
Cigarette Taxes Vary But Continue Upward
The greatest variation among the states is seen in cigarette taxes. South Carolina is the only state with a tax rate below 10 cents, charging just 7 cents a pack in taxes. Next-lowest are Missouri at 17 cents, Mississippi at 18 cents and Kentucky and Virginia, both at 30 cents. But in most jurisdictions, per-pack taxes are high, and often heading higher.
Nine states are charging higher rates this July than last. Delaware raised its rate by 60 cents to $1.15; Hawaii’s rate increased 20 cents to $1.80; Maryland and Massachusetts increased their rates by $1; New Hampshire raised its rate by 28 cents to $1.08; New York’s rate climbed by $1.25 to $2.75, the highest in the nation; South Dakota upped its rate by $1 to $1.53; Vermont raised its rate by 20 cents, to $1.99; and Wisconsin raised its rate by $1 to $1.77.
Most jurisdictions now have rates over 90 cents per pack, while 24 states and the District of Columbia charge a dollar or more per pack and 11 charge $2.00 or more per pack. Once again, statewide rates may not be the end of the story: an increasing number of cities and counties impose additional taxes on tobacco products.
Savings Worth the Trip?
Is it worth it to cross a state line to save money? At first glance, potential savings may be attractive.
An Indiana resident can save 1 percent in sales tax by crossing the line to Michigan, or 1.5 percent by buying in Ohio – perhaps a $250 savings on a $20,000 purchase.
Michigan smokers can save over $1 per pack if they buy their cigarettes in Indiana, or 75 cents if they cross into Ohio. Those traveling along the east coast can save over $10 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. as cigarette taxes are 70 cents per pack lower in the Old Dominion state than in the nation’s capitol.
The state of Washington has notably higher rates for gas and cigarettes than neighboring Idaho and Oregon, and Oregon also offers no sales tax.
Tempting as these relative bargains may seem, they could ultimately be more costly.
“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,” Schibley said. “Some states are also cracking down on what they perceive to be cigarette ‘smuggling.’”
In addition, the price of gas itself actually makes staying put a better option.
“With gas averaging over $4 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, and a shopping expedition that burned just a few gallons of gas could wipe out the sales tax savings on hundreds of dollars of purchases,” said Schibley.
About Daniel Schibley
Daniel Schibley is an attorney and state tax analyst who specializes in tracking, analyzing and reporting on new developments and trends in state tax issues. A former practicing attorney and assistant professor of law, Schibley is a leading authority on Streamlined Sales Tax Project activities.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading products are The ProSystem fx® Office, CorpSystem®, CCH® Tax Research NetWork™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.
Wolters Kluwer is a leading global information services and publishing company. The company provides products and services globally for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory sectors. Wolters Kluwer has annual revenues (2007) of €3.4 billion ($4.8 billion), maintains operations in over 33 countries across Europe, North America and Asia Pacific and employs approximately 19,544 people worldwide. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. For more information, visit www.wolterskluwer.com.
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