Details on State Consumer Tax Laws
What are Consumer Taxes?
There are several different kinds of taxes levied by federal, state, and local governments for the purpose of raising revenue. The revenue raised through taxes is used for maintaining highways and other infrastructure projects; public schools; parks; police; and other vital resources shared by a community. The consumer tax category generally refers to taxes paid by consumers at the point of purchase. Paying an extra 7 percent sales tax in addition to the list price for a pair of pants is one example. Certain items, such as cigarettes and gasoline, usually are taxed at a much higher rate than general purchases.
Two Types of Consumer Taxes
Overall, there are two main types of consumer taxes. Some, such as retail sales and use taxes, are meant merely to raise revenue. But others are designed to inhibit certain behavior, as is the case with alcohol, tobacco, and gambling taxes. Not all states have a tax on retail sales, but each state has a tax on tobacco and alcohol. Some states control the sale of alcoholic beverages entirely and prohibit their sale by private retailers.
So-called "sin" taxes targeting behavior believed by many to be immoral or unhealthy (such as smoking) are referred to as excise taxes, since they are specific to a certain category of goods. States that have legalized the recreational use of marijuana also have levied steep excise taxes on the herb. While gasoline is an excise tax, it is meant to raise highway maintenance funds in proportion to use by motorists. In many cases, the behavioral control aspect of the tax has outweighed the particular tax's revenue-raising function. For example, cigarette taxes in tobacco-producing states (North Carolina, Kentucky, Tennessee) are not nearly as high as those in states attempting to inhibit smoking (New York, Washington, Rhode Island).
Market forces also influence consumer taxes. For example, the tax on wines produced in California is low compared to taxes on wines produced in other states. If California taxes were close to the national average, then California wines sold in other states would have artificially inflated prices, thus hurting its marketability.
Examples of State Consumer Taxes
Consumer taxes frequently change, typically through some combination of fiscal needs and political expediency. Meanwhile, most tax rates are not tied to inflation and must be raised periodically just to keep up with revenue needs. The following is a sample of state consumer tax law provisions (as of April 2015):
- Alaska: No statewide sales tax (some municipalities have a retail sales tax)
- Colorado: 10 percent tax on all marijuana sales; 2.9 percent sales tax (as high as 10.4 percent with the addition of local taxes)
- Indiana: 18¢ tax per gallon of gasoline; 55¢ per pack of 20 cigarettes
- Missouri: 6¢ tax per gallon of beer; $2.00 river boat gambling tax per person admitted
- New York: $4.35 per pack of 20 cigarettes, plus an additional $1.50 local tax in New York City
In addition to sales tax, states also levy what is known as a "use" tax on goods purchased in other states for exclusive use in one's home state. For instance, someone who purchases a car tax-free in Oregon (which has no sales tax) and drives it back home to Washington will be required to pay Washington taxes on the purchase price.
Talk to a tax attorney in your state if you have any additional questions about consumer taxes.
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