Consumer taxes for retail sales items, gas and cigarettes all continue to climb, according to CCH, a Wolters Kluwer business, a global 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, cigarette and sales taxes. 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, 2010.
“From the increases in consumer taxes, it’s evident that many states are trying to shore up revenue shortfalls,” said CCH Senior State Tax Analyst Daniel Schibley, JD. “Many other states have not yet increased taxes, but may do so.”
Across consumer taxes, five states increased their tax on gasoline, five states increased their sales tax and 11 states increased their tax on cigarettes. The District of Columbia also increased its taxes across all three consumer tax categories, joining North Carolina, which is the only state to also hike taxes in all three areas. Florida was the only state to report a tax reduction – lowering its gas tax from 16.1 cents to 16 cents.
Changing Gas Prices and Gas Taxes
While the price of gas has headed downward in the past few months, taxes on gas have headed upward for drivers in five states: California, Kentucky, Minnesota, Nebraska and North Dakota, as well as the District of Columbia. The rate has increased incrementally in some states, for example, from 27.1 cents to 27.5 cents per gallon in Minnesota while nearly doubling in the past year in California, from 18 cents to 35.3 cents per gallon.
However, Washington state continues to have the highest state gas tax at 37.5 cents per gallon, while Georgia continues to levy the lowest state gas tax of just 7.5 cents per gallon. However, 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. For example, Alabama drivers contribute significantly more to the state treasury than their state’s 16-cent gas tax for every gallon of gas they buy. Additionally, 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 revenue sources 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 a sales tax of just 2.9 percent while California is at the top, at 8.25 percent. California’s rate includes a 1-percent sales tax collected on behalf of local governments; Virginia also collects a 1-percent sales tax for local governments (this 1 percent is included in the statewide rate shown on the map).
Over the past year, five states have increased their sales tax rate: Arizona, Kansas, Massachusetts, New Mexico and North Carolina. The District of Columbia also increased its sales tax. Increases have ranged from incremental in states like New Mexico, which increased its rate from 5 percent to 5.125 percent, to more significant in states such as Massachusetts, where the rate has increased from 5 percent to 6.25 percent over the past year. In all, 26 states and the District of Columbia now impose a sales tax of 6 percent or more.
However, statewide sales tax rates are often only part of the tax consumers pay as county, city and other local jurisdictions may add their own sales taxes on top of state taxes, which can easily add up. For example, Colorado’s statewide 2.9 percent rate becomes 8.4 percent in Steamboat Springs and 8.9 percent in Winter Park. In Kansas City, the sales tax adds up to 8.925 percent (including the state’s 6.3 percent tax) in most areas, though Kansas City taxes can go as high as 9.925 percent in the city’s special taxing districts. Among the nation’s top honors for big cities are Chicago, which imposes a 9.75 percent rate once county, mass transit and city levies are added to Illinois’ statewide 6.25 percent sales tax, and Los Angeles, which also has a 9.75 percent tax rate.
Cigarette Taxes Vary But Continue Upward
Increasing taxes on cigarettes was popular among the states over the past year, with 10 states adding on to their cigarette taxes: Connecticut, Delaware, Hawaii, New Mexico, New York, North Carolina, Pennsylvania, South Carolina, Washington and Wisconsin. The District of Columbia also increased its tax. In fact, both the District of Columbia and Hawaii increased their taxes on cigarettes the previous year as well.
Among the biggest percentage increases came from South Carolina where cigarette taxes went from the lowest in the nation at 7 cents per pack to 57 cents. Now, Missouri boasts the lowest cigarette tax at 17 cents per pack, unchanged from last year. Also now lower than South Carolina’s cigarette taxes are taxes in Alabama, Georgia, Louisiana, North Carolina, North Dakota, Virginia and West Virginia.
By far, the highest state cigarette tax is assessed by New York – where the tax is now $4.35 per pack, up from $2.75 last year. Four other states that raised cigarette taxes to $3 or more per pack over the past year include Connecticut, Hawaii, Rhode Island and Washington.
Another 10 states now charge $2 to $2.99 in cigarette taxes per pack and 24 states levy a cigarette tax from $1 to $1.99 a pack. Once again, statewide rates may not be the end of the story: An increasing number of cities and counties, as well as the federal government, impose additional taxes on tobacco products.
Lower Gas Prices, Higher Sales Taxes May Lead to More Road Trips
With gas prices going down and sales taxes and cigarette taxes going up, power shoppers and smokers may be inclined to take travel to save money. How much, if any, savings can be had depends on several factors.
A Tennessee resident may attempt to save 3 percent in sales tax by crossing the line to Alabama or Georgia – perhaps a $150 savings on a $5,000 purchase. However, that individual will have a (frequently overlooked) use tax liability in Tennessee for the difference.
Wisconsin smokers may be inclined to travel to Minnesota where they can save more than $2 a pack in taxes and New York smokers may be inclined to head to just about any neighboring states where they can save anywhere from $1.35 per pack or more. Meanwhile, heading to Alaska to enjoy just an 8-cent-a-gallon gas tax is out of the question for most. However, New Jersey’s gas tax of just 10.5 cents per gallon may be enough of a savings for some drivers in Pennsylvania paying 31.2 cents in gas tax per gallon, while shoppers in New Jersey may be willing to take a drive to Delaware to buy retail purchases without a sales tax.
However, as tempting as these bargains may seem, they could ultimately be more costly.
“While most of us think about sales tax, there also is a use tax. This applies to residents’ out-of-state purchases, and state governments are getting more aggressive in collecting these taxes,” Schibley said. “As more states assess higher and higher taxes on cigarettes, the market for cigarette smuggling also may increase, but many states are cracking down on this. A new federal law also offers states a significant additional enforcement mechanism.”
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 the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CorpSystem®, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.