Annual CCH Survey of Gas, Sales and Cigarette Taxes
(RIVERWOODS, ILL., July 11, 2006) – While gas prices are expected to be high no matter where travelers head to in the U.S. this summer, gas taxes in some states will send the price at the pump soaring even higher, according to CCH, a Wolters Kluwer business and a leading provider of tax 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 and low, or even non-existent, as of July 1, 2006.
“Each state has its individual reasons for setting rates, but when you look at the rates across the country, it’s hard to make reason out of how states choose their consumption taxes,” said CCH State Tax Analyst Dan Schibley, JD. “For example, this year, we saw three states lower taxes on gas, while eight increased gas taxes.”
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 34 cents in Washington, which raised its gas tax 3 cents from last year. The average tax imposed across states and the District of Columbia is nearly 21 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 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 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.
Eight states have higher gas taxes now than a year ago and two states ( Nevada and Wyoming) and the District of Columbia have lowered their gas tax. 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.
City and County Sales Taxes Add on to State
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 three states – Mississippi, Rhode Island and Tennessee – are at the top of the list with a 7-percent rate. New Jersey joins them at 7 percent effective July 15, 2006. Among states with a sales tax, the average rate is 5.3 percent.
Except for New Jersey, sales taxes for all states and the District of Columbia remain unchanged from last year. 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 add-on sales taxes can add up. 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 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 7.6 percent in the city of Denver, and although Alaska does not have a statewide tax, Juneau imposes a 5-percent sales tax.
Cigarette Taxes Vary But Continue Upward
The greatest variation among the states is seen in cigarette taxes. Traditionally, the per-pack tax in tobacco-raising states has been negligible, but now South Carolina is the only hold-out with a tax rate below 10 cents, charging just 7 cents a pack in taxes. North Carolina raised its rate to 30 cents per pack from 5 cents last August and, as of July 1, 2006, raised it again to 35 cents per pack.
Other states raising their per-pack cigarette taxes effective by July 1, 2006 are Maine (to $2.00, doubling its previous year tax), Oklahoma (to $1.03), Oregon (to $1.18) and New Hampshire (to 80 cents).
The majority of states now have rates of over 50 cents per pack and average nearly 91 cents per pack. Nineteen states charge a dollar or more per pack, with Rhode Island’s $2.46 per pack the highest rate, followed by New Jersey and Washington, both also charging more than $2.00 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.
Stay Put or Cross 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 a few extra miles before filling up or making a purchase.
Smokers traveling through 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. as cigarette taxes are 70 cents per pack lower in the Old Dominion state than in the nation’s capitol.
While Rhode Island held the distinction last year of having the highest taxes across the three categories tracked by CCH, Washington now takes the lead in having the highest state gas tax in the nation. Travelers to the Northwest, though, can get a reprieve on sales tax by making purchases in Oregon (which has no sales tax) rather than in Washington, though for cigarettes they’d need to travel to Idaho to find a below $1.00 per pack tax.
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 seem, they could ultimately be more costly.
“Some states are cracking down on what they perceive to be cigarette ‘smuggling,'” Schibley said. “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, the price of gas now may actually make staying put a better option.
“With gas averaging nearly $3 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,” said Schibley. “So rather than driving miles to buy lower-taxed cigarettes and gas or to avoid local sales tax, greater savings may come for most simply from staying closer to home.”
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax and accounting law 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 is based in Riverwoods, Ill.
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