Many smokers are feeling a greater squeeze on their wallets as more states increase cigarette taxes, while most states have held the line on gas and sales tax rates over the last year, according to CCH, a Wolters Kluwer business and a leading provider of tax information, software and services. 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 to low, or even non-existent, as of July 1, 2007.
"Cigarettes continue to be targeted for some hefty tax increases," said CCH State Tax Analyst Dan Schibley, JD. "By contrast, the vast majority of states are standing pat on gas and sales taxes."
State per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 36 cents in Washington, which raised its gas tax 2 cents from last year. In more than half the states, the rate is 20 cents per gallon or less. 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.
Seven states have higher gas taxes now than a year ago, with Washington's 2-cent hike the largest increase, while two states ( Iowa and Nebraska) lowered their rates by fractions of a penny. 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 four states - Mississippi, New Jersey, Rhode Island and Tennessee - are at the top of the list with a 7-percent rate. Among states with a sales tax, more than half have rates of 5.5 percent or more.
North Carolina was scheduled to drop its sales tax to 4 percent on July 1 this year, a decrease of .5 percent from a year ago, but at the last minute, a series of scheduled decreases has been halted at 4.25 percent - at least until August 1. The sales tax rate has risen one percent in South Carolina and Idaho, to 6 percent in each case, since July, 2006. Otherwise, sales taxes 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 tacked-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 four 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.
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 South Carolina is now the only state with a tax rate below 10 cents, charging just 7 cents a pack in taxes. Next-lowest are Mississippi (18 cents) and Kentucky and Virginia, both at 30 cents.
Ten states are charging higher rates this July than last. Alaska raised its rate by 20 cents to $2.00; Arizona's rate is also $2.00 after an 82-cent increase; Connecticut's rate stands at $2.00 after a 49-cent hike; Hawaii's rate increased 20 cents to $1.60; Indiana's rate increase 44 cents to 99.5 cents; Iowa's rate more than tripled from 36 cents to $1.36 cents; New Jersey's rate climbed 18 cents to $2.575; Tennessee's rate more than tripled, from 20 cents to 62 cents; Texas's rate did the same, zooming from 41 cents per pack to $1.41; and Vermont's increased 60 cents to $1.79.
Most states now have rates over 80 cents per pack, while 21 states charge a dollar or more per pack and eight charge $2.00 or more per pack, with New Jersey's $2.575 per pack, or $25.75 per carton, the highest rate. 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 during the peak summer holiday months.
Smokers can save over $1 per pack if they buy their cigarettes in Wisconsin or Indiana rather than Michigan, or 75 cents if they cross into Ohio. Those traveling along the east coast can save over $20 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.
Washington has notably high rates for gas and cigarettes, so travelers find some relief in neighboring Idaho and Oregon, and Oregon also beckons with no sales 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.
"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.'"
As for crossing a state line to buy cheaper gas, the price of gas itself actually makes staying put a better option.
"With gas averaging close to $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.