Annual CCH Survey of Gas, Sales and Cigarette Taxes
(RIVERWOODS, ILL., July 30, 2009) – Consumer taxes – paid on general retail sales, at the gas pump or for cigarettes – keep 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, 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, 2009.
“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 Senior State Tax Analyst Daniel Schibley, JD.
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 37.5 cents in Washington. In half the states and the District of Columbia, the rate is less than 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 Hawaii, local taxes in each of its counties can more than double the basic 17-cent-per-gallon state rate. Some states also impose their sales tax on sales of gasoline, in addition to gas taxes.
Five states have higher gas taxes now than a year ago, with Minnesota’s 5.1-cent hike the largest increase. 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 California is at the top, at 8.25 percent. California was one of five states that increased the rate of tax last year. In addition, Massachusetts will increase its rate to 6.25 percent on August 1 and North Carolina’s rate will edge up to 4.75 percent on October 1. Among states with a sales tax, half currently have rates of 6 percent or more.
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 six 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 for big cities, once county, mass transit and city levies are added to Illinois’ statewide 6.25 percent sales tax.
Two states – California and Virginia – collect a 1-percent sales tax on behalf of local governments. That 1 percent is included in the statewide rate shown on the map.
Cigarette Taxes Vary But Continue Upward
The greatest variation among the states is 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, and Virginia, at 30 cents. But in most jurisdictions, per-pack taxes are high, and the trend is for them to go higher.
Ten jurisdictions are charging higher rates this July than last. Arkansas raised its rate by 56 cents to $1.15; the District of Columbia and Florida raised their rates by $1; Hawaii increased its rate by 80 cents to $2.60; Kentucky doubled its rate to 60 cents; Mississippi upped its rate by 50 cents to 68 cents per pack; New Hampshire went from $1.08 to $1.78; New Jersey raised its rate by 12 ½ cents to $2.70; Rhode Island went from $2.46 to a nation-high $3.46; and Vermont raised its rate by 25 cents, to $2.24.
In addition, Delaware will raise its rate by 45 cents, to $1.60 on August 1 and Wisconsin’s rate will jump by a further 75 cents to $2.52 on September 1.
A majority of jurisdictions now have rates of $1 per pack or higher, and 14 charge $2 or more per 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.
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 $300 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 $15 per carton if they buy their cigarettes in Delaware rather than New Jersey. It also pays to buy cigarettes in Virginia rather than the District of Columbia as cigarette taxes are $1.70 per pack lower in the Old Dominion state than in the nation’s capital.
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 shopping close to home a better option.
“Even with the price of gas down from last year’s high, your car would have to get very good mileage to justify driving any distance just to save a few cents per gallon on the gas tax, and a shopping expedition that burned several extra gallons of gas could wipe out any perceived sales-tax savings on even large 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® Suite, CCH® TeamMate, CorpSystem®, CCH® IntelliConnect™, 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 for professionals in the health, tax, accounting, corporate, financial services, legal, and regulatory sectors. Wolters Kluwer had 2008 annual revenues of €3.4 billion, employs approximately 20,000 people worldwide, and maintains operations in over 35 countries across Europe, North America, Asia Pacific, and Latin America. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Visit www.wolterskluwer.com for information about our market positions, customers, brands, and organization.