This week, Gail looks at the patchwork of taxes that drive up the cost of summer vacation.
Dear Readers —
It's hard to believe that summer is halfway over! If you're like me, when it comes to planning a vacation, "taxes" are usually the last thing on your mind. Usually you think about the attractions an area offers, the quality of the beach, the temperature of the water, whether it's kid-friendly (or adults-only), the expected weather, cultural offerings and other enjoyable activities.
Still, I thought you might get a kick out of a study conducted by CCH, a nationally known tax research and publishing firm, which compared what it calls the "vacation taxes" charged by each state plus the District of Columbia: the basic state gasoline tax rate, the state sales tax, and the tax that states tack on to each pack of cigarettes.
You can check out CCH's state-by-state map and find out the rates that apply to the place where you plan to vacation by clicking on this link.
A couple of caveats are in order. First, California residents, who pay among the highest gasoline prices in the nation, will be surprised to see that the "basic state tax rate per gallon" is only 18 cents. That's because this survey does not include local taxes, environmental taxes, and other charges that can push the price at the pump to close to $3.00 per gallon depending upon where in the state you tank up.
New York residents will shake their heads when they see that their basic state tax on gasoline is even lower than California's — just 8 cents a gallon. But as a New York City driver might say, "Fuhgeddaboutit! If you believe you can find unleaded for less than $2.50 a gallon anywhere in Manhattan, there's a bridge I wanna sell ya."
Ken Traisman, the state tax analyst for CCH, told me that, after studying the data, he could find no logic or patterns to the tax rates states charge. "Each state has to balance its books and they go about it in different ways," he said. "A state with a low sales tax may have higher income or property taxes." Of course, only residents pay those, not out-of-state tourists.
Forget your beach umbrella? Buying souvenir T-shirts for the family? Five states don't have any sales tax: Alaska, New Hampshire, Delaware, Oregon, and Montana. But more than half of the states that do have a sales tax charge between 5 and 6 percent. Both Arkansas and Vermont raised their state sales taxes to 6 percent last year.
However, here, too, appearances can be deceiving. For instance, at 2.9 percent, Colorado's state sales tax ranks among the lowest. But Traisman points out that local sales taxes imposed by various counties and cities make the actual rate higher. Or take Alabama, where the state sales tax is just 4 cents on each dollar. But if you make a purchase in Montgomery, "you can end up paying a total of 10 percent in sales tax once a 2.5 percent city tax and a 3.5 percent county tax are added to the state's rate," according to CCH.
Remember the furor to raise cigarette taxes a few years ago? States complained that they were shelling out millions of dollars a year because of tobacco-related illnesses and decided smokers ought to pay a bigger share of the cost. In the past year, seven states have hiked their cigarette taxes. More than half the states now add 50 cents per pack in taxes; 15 states plus the District of Columbia slap more than $1 in excise taxes on a pack of cigarettes.
New Jersey now has the highest cigarette tax rate in the country: $2.95 a pack and another rate increase is in the works. Rhode Island, which as one of the smallest states ranks near the top in all three of these tax categories, and Massachusetts round out the top three.
As you might expect, politics play a role in the way taxes are dished out. For instance, I doubt it's a coincidence that tobacco-growing states impose the lowest taxes on cigarettes. Until July 1 of this year, when it raised the tax per pack to 20 cents, Virginia's rate was the lowest in the country. Now the three states with the lowest taxes on cigarettes are Kentucky (3 cents per pack), North Carolina (5 cents per pack), and South Carolina (7 cents per pack).
But raising taxes too high can backfire, said Traisman, because "people look for alternatives." For instance, smokers who want to avoid their state's cigarette tax, can buy cartons over the Internet*, on an Indian reservation, or simply drive across the state line to a less-taxing neighbor. As CCH points out, smokers in Washington, D.C., can potentially save close to $10.00 per carton by buying their cigarettes in Virginia.
Just for the heck of it, I did my own comparison of tax rates on beer and wine. After all, you can work up a heck of a thirst in all that sun!
For those who want the state-by-state excise tax numbers, you can log on to: www.taxadmin.org/fta/rate/beer.html or www.taxadmin.org/fta/rate/wine.html. Essentially, these excise taxes are imposed on the person selling the beverage and, of course, built into the price the consumer pays. Nationwide, they average 19 cents per gallon on beer and 64 cents per gallon on wine. But, just as with the other "vacation" taxes, there is tremendous variation.
While most states charges sales tax on alcoholic beverages, Delaware does not impose sales tax on either beer or wine. In Vermont, you won't pay sales tax on beer, but you'll pay it on wine. A number of states charge an additional tax on "sparkling" wine and wine coolers. And while it's not technically a tax, a few states add a refundable recycling fee to the price as an inducement to return the container.
In light of their distance from the mainland, it's probably not much of a surprise that some of the highest beer and wine excise tax rates are in Alaska and Hawaii. Alaska tacks on $1.07 per gallon for beer (35 cents per gallon more for beer produced in "small breweries") and $2.50 per gallon on wine. But there's no sales tax on either.
Once again, politics enters the picture. California, home of the Napa Valley, imposes an excise tax of just 20 cents per gallon on both beer and wine. Missouri, home of Anheuser Busch, and Wisconsin, where Schlitz, Pabst and Miller got their starts, have the lowest beer excise tax rates — just 6 cents per gallon. For some reason, Iowa and Georgia have some of the highest excise taxes on wine.
I fully recognize that this information probably isn't going to make you change your vacation plans — or even drink less! — but at least you know why your favorite bottle of brew costs more or less than it does at home.
To close, I'll just leave you with an astute observation by Ken Traisman who's been studying state tax rates for 7 years: "Once taxes go up, they rarely go down. 'Temporary' taxes become permanent."
Enjoy the rest of the summer!
Gail
*A couple of bills have been introduced in Congress to help states collect taxes on Internet cigarette purchases, but nothing has passed yet.
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