States Raising Cigarette, Gas and Sales Taxes to Cover Shortfalls

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Consumers don't have to wait for the Bush tax cuts to be repealed in order to pay higher taxes. Individual states are hiking tax rates on the sale of retail items, gasoline and cigarettes. Over the last year, 11 states have hiked taxes on cigarettes, five have increased their gasoline tax and five have increased their state sales taxes, according to a recent survey of state consumption taxes.

"From the increases in consumer taxes, it's evident that many states are trying to shore up revenue shortfalls," said Daniel Schibley, senior state tax analyst for CCH, a subsidiary of tax and accounting services firm Wolters Kluwer (WTKWY) which conducted the survey. "Many other states have not yet increased taxes, but may."

Lately, cigarette taxes have been the tax of choice for cash-strapped states. Connecticut, Delaware, Hawaii, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, South Carolina, Washington, Wisconsin and the District of Columbia have all raised their taxes on cigarettes since last year. The largest percentage hike was in South Carolina where the state raised its cigarette tax from 7 cents per pack to 57 cents. The most expensive tax on cigarettes is in New York where the rate climbed to $4.35 per pack from $2.75 last year.

State sales taxes were raised in Arizona, Kansas, Massachusetts, New Mexico, North Carolina and Washington D.C. over the last year. The smallest increase came in New Mexico, which raised its sales tax rate from 5% to 5.125%. Massachusetts had the heftiest increase last year, its rate jumped from 5% to 6.25%. While five states – Alaska, Delaware, Montana, New Hampshire and Oregon – still impose no sales tax, 25 states and the District of Columbia now have a sales tax of 6% or more, the report said.

Gasoline taxes have also been on the rise during the last year, as California, Kentucky, Minnesota, Nebraska, North Dakota and Washington D.C. have all raised their rates. Drivers in Minnesota saw a minimal increase from 27.1 cents to 27.5 cents per gallon, while California's drivers saw taxes at the pump almost double, going to 35.3 cents per gallon from 18 cent per gallon last year.

The survey noted that consumers may actually wind up paying even higher rates in gasoline, sales and cigarette taxes because: Taxes and fees related to environmental impact, licenses and inspections are often added to gasoline taxes in some states; city and other local jurisdictions may add their own sales taxes on top of state sales taxes; and cities, counties, and the federal government, may also impose additional taxes on tobacco products. With these consumption taxes already in affect, the trend toward higher taxes has already begun.
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