Annual Survey of Gas, Sales, Cigarette Taxes
Updated: July 1, 2004 to reflect N.J. law change
(RIVERWOODS, ILL., June 29, 2004) – When it comes to the consumption taxes that fund much of state government – general sales taxes and the excise taxes on gas and cigarettes – America is a study in contrasts, according to an annual survey of these taxes by CCH Tax and Accounting (CCH), a leading provider of tax information, software and services and a Wolters Kluwer company. A national map of tax rates, as published in the CCH State Tax Review, shows a patchwork of rates in each category, from high and low or even non-existent.
“Aside from generally low cigarette taxes in tobacco-growing states, there seems to be little pattern to the way states tax consumption,” said Ken Traisman, J.D., state tax analyst for CCH.
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 30 cents in Rhode Island, with most states imposing a basic tax of between 16 and 23 cents per gallon. Many drivers actually pay more than that basic rate when they pull up to the pump, though. Hawaii, for example, has local taxes in each of its counties that can more than double the basic 16-cent-per-gallon state rate.
Taxes and fees related to environmental impact, licenses and inspections may all 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.
Although the price of gas soared to an all-time high earlier this year, there has been little enthusiasm for either raising or lowering gasoline taxes.
“Raising taxes is never popular, and with $2-per-gallon gas, lowering most states’ gasoline tax by 10 or even 20 percent wouldn’t make a major dent in what people pay at the pump,” Traisman observed.
State Sales Taxes Only Part of the Story
Sales taxes are usually major money-raisers for states that have them, and are often an important funding source for cities and counties, as well.
Five states – Alaska, New Hampshire, Delaware, Oregon and Montana – impose no sales tax. In the remaining states, Colorado (2.9 percent) and Virginia (3.5 percent) are at the bottom of the scale, while three states – Rhode Island, Tennessee and Mississippi – 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. Vermont and Arkansas both have increased their sales taxes to 6 percent in the last year.
The statewide sales tax rate is sometimes only part of the story, though. County, city and other local jurisdictions may add their own sales taxes on top of the state’s levy.
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, Alabama, 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, Mississippi, 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.
“You see rates that reflect everything from an appreciation of tobacco as an important local industry to a determined attempt to decrease the incidence of smoking through high taxes,” Traisman said. Six states have increased their cigarette taxes since July 1, 2003: Alabama (to 42.5 cents per pack), Michigan (to $2.00 effective this July 1), Nevada (to 80 cents), New Jersey (to $2.40), Pennsylvania (to $1.35) and Rhode Island (to $1.71).
A handful of traditional tobacco-growing states tax cigarettes at less than a dime per pack: Virginia (2.5 cents) Kentucky (3 cents) North Carolina (5 cents) and South Carolina (7 cents). The majority of states now have rates of over 50 cents per pack and 16 states charge a dollar or more per pack. New Jersey’s $2.05 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?
In the patchwork of state consumption taxes, there are some states that stand out from their neighbors in having notably higher or lower consumption taxes than their neighbors, potentially luring cross-border buyers and inducing motorists to drive an extra mile before filling up or making a purchase.
Smokers in Michigan and New Jersey can save over $1 per pack if they buy their cigarettes in the states of Indiana, Ohio or Delaware. Washington, D.C., smokers also have a strong incentive to cross a state line: cigarette taxes are 97.5 cents per pack lower in neighboring Virginia, a potential savings of nearly $10 per carton.
Rhode Island is distinguished as having higher taxes in each of the categories tracked by CCH than any of its direct neighbors. In fact, its gasoline and sales taxes are the highest statewide rates in the nation, and its cigarette levy is eclipsed only by Michigan’s and New Jersey’s. Residents of the state of Washington save on taxes whenever they leave their state for neighboring Oregon (which has no sales tax) or Idaho.
Missouri has lower taxes in all three categories than the neighboring states with whom it has its longest borders: Illinois, Iowa, Nebraska, Arkansas, Kansas and Tennessee all have higher gas, sales and cigarette taxes. But Missourians can save a penny a gallon if they cross into Oklahoma to fill their tanks and 14 cents per pack when they buy their cigarettes in Tennessee.
“With gasoline prices what they are, you need a high-mileage car to justify a long trip just to save a few pennies in tax, though,” Traisman noted.
About CCH Tax and Accounting
CCH Tax and Accounting (www.tax.cchgroup.com), based in Riverwoods, Ill., is a leading provider of tax 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, CCH Accounting Research Manager and the U.S. Master Tax Guide. CCH Tax and Accounting is a Wolters Kluwer company (www.wolterskluwer.com). Wolters Kluwer NV is a leading multinational publisher and information services company, with annual revenues (2003) of EUR 3.4 billion and approximately 19,500 employees worldwide