Survey Shows Gas, Sales, and Cigarette Taxes Are Trending Higher

Published October 8, 2008

The taxes Americans pay as consumers in retail stores, at the gas pump, and for cigarettes are trending higher, according to an annual survey of consumption taxes by CCH Inc., a Riverwoods, Illinois-based firm that provides tax, accounting, and audit information and software solutions.

CCH examined gasoline, cigarette, and sales taxes, and in all three areas the survey notes big differences among the states.

As of July 1, state per-gallon gasoline taxes range from a low of 7.5 cents in Georgia to a high of 37.5 cents in Washington, which raised its gas tax 1.5 cents from last year.

In half the states and the District of Columbia, the tax 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.

Lots of Add-Ons

Taxes and fees for environmental impact, licenses, and inspections are passed through at the pump to consumers in a number of states, the report notes. New York drivers, for example, contribute considerably more to the state treasury than their state’s 8 cents per gallon gas tax. In Hawaii, local taxes in each of its counties can more than double the basic 17 cents per gallon state rate.

Eight states have higher gas taxes now than a year ago, with Minnesota’s 2 cent hike the largest increase.

Three states lowered their rates—Nebraska and Rhode Island knocked one penny off their previous per-gallon rate, while Tennessee lowered its rate by 1.4 cents, to 20 cents a gallon.

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.

Multiple 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, the report notes.

Five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—impose no sales tax. Of the others, Colorado is at the bottom of the scale with a 2.9 percent sales tax rate, while five states—Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee— top the list with a 7 percent rate.

Among states with a sales tax, more than half have rates of 5.5 percent or more.

The sales tax rate has risen by 1 percentage point in Indiana, Iowa, and Maryland from the previous year. Utah is the only state to lower its sales tax rate in the past year, by .10 percentage points, to 4.65 percent.

Adding Up Quickly

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 quickly. At first glance, for example, it would seem better to make purchases in Alabama, with its 4 percent state sales tax, than in Mississippi, one of the five highest sales-tax states.

But if you buy an item in Montgomery, Alabama 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, Mississippi, 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’s-highest 10.25 percent rate, once county, mass transit, and city levies are added to Illinois’ basic 6.25 percent sales tax.

Cigarette Taxes Climb

The greatest variation among the states is in cigarette taxes, the report observes. South Carolina is the only state with a tax rate below 10 cents, charging 7 cents a pack in taxes. Next lowest are Missouri at 17 cents, Mississippi at 18 cents, and Kentucky and Virginia, both at 30 cents.

But in most jurisdictions, per-pack taxes are high, and they are heading higher in many. Nine states are charging higher rates than one year ago, the report notes.

* Delaware raised its per-pack cigarette tax by 60 cents, to $1.15;

* Hawaii’s rate increased 20 cents, to $1.80;

* Maryland and Massachusetts increased their rates by $1;

* New Hampshire hiked its rate by 28 cents, to $1.08;

* New York’s rate climbed by $1.25, to $2.75, the highest in the nation;

* South Dakota upped its rate by $1, to $1.53;

* Vermont raised its rate by 20 cents, to $1.99; and

* Wisconsin raised its rate by $1, to $1.77.

Most jurisdictions now have rates more than 90 cents per pack, while 24 states and the District of Columbia charge a dollar or more per pack and 11 charge $2.00 or more per pack.

Here, too, statewide rates may not be the end of the story—an increasing number of cities and counties are imposing additional taxes on tobacco products.

Daniel Schibley ([email protected]) is an attorney and state tax analyst specializing in tracking, analyzing, and reporting on new developments and trends in state tax issues for CCH Incorporated in Riverwoods, Illinois.

For more information ..

A national map showing gasoline, cigarette, and sales tax rates as of July 1, 2008, prepared by CCH Group: