The conclusion from a recently released report on cigarette taxes and cigarette smuggling from the Tax Foundation may sound obvious. The Washington, D.C.-based think tank found that when states impose high excise taxes on cigarettes, smokers tend to avoid buying cigarettes there. Instead, they buy them in low-tax states -- smuggling their smoky contraband across state lines.
No shocker there, right? However, what may surprise you is the foundation's revelation of the size of the phenomenon.
The States That Bum the Most Out-of-State Smokes
At $4.35 a pack, New York levies the highest excise tax on cigarettes in the land. It has nearly tripled the size of its excise since 2006 and now boasts an excise tax almost precisely three times the national average ($1.46 a pack).
The result: the majority of cigarettes smoked in New York are contraband. According to the study's data (which goes through 2012, the most recent year for which complete data are available), 56.9 percent of New York's cigarettes were smuggled into the state, dodging New York excise taxes.
%VIRTUAL-article-sponsoredlinks%A majority of smokes are smuggled in Arizona as well (51.5 percent), and New Mexico and Washington state (which tax smokes at $1.66 and $3.025 a pack, respectively) are not far behind. And they may not be alone.
The study shows that smuggled smokes make up 25 percent or more of cigarettes consumed in 12 states. And with the foundation reporting that 30 states, plus the District of Columbia, increased cigarette taxes between 2006 and 2012, the trend is moving toward higher cigarette taxes -- and more cigarette smuggling into states doing more of the taxing.
Smuggled From Where?
So where are all these contraband smokes coming from? In the United States, roughly 15 billion packs of cigarettes are sold each year. Some come from international globetrotters arriving in-state via duty free. As for the rest, the six biggest supplier states for cigarettes (the places where smugglers buy their contraband smokes before taking them back home) appear to be:
New Hampshire -- 24.2 percent
Wyoming -- 22.3 percent
Idaho -- 21.3 percent
Virginia -- 21.1 percent
Delaware -- 20.9 percent
West Virginia -- 20.6 percent
In these six states, at least 1 in 5 cigarettes sold in the state isn't consumed there -- so these places are where the cigarettes are coming from. (Note that Altria's (MO) headquarters lie in Virginia. North Carolina, which is home to twin tobacco heavyweights Lorillard (LO) and Reynolds American (RAI), may also be a prime source for smokes -- but the foundation didn't provide full data on the state in its study, so it's hard to say for sure. Other jurisdictions with incomplete data are Alaska, Hawaii and the District of Columbia.)
Curiously, while cigarette excise taxes are pretty low in four of these six states, in two of them -- Delaware and New Hampshire -- the respective per pack excise taxes of $1.60 and $1.78 are a bit higher than the national average of $1.46.
The attraction of smuggling cigarettes bought in these states can be explained by geography. Delaware is surrounded by tax-crazy states Maryland, Pennsylvania and New Jersey. New Hampshire abuts even higher-above-average taxers Vermont, Maine and Massachusetts.
Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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The Aloha State legislature, in an effort to preserve the uniqueness of their island paradise, has an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction.
The work must be done by a certified arborist, and the deduction can be claimed only every third year. The deduction was enacted in 2004. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators, a flinty bunch, don't see the harm in taxing anyone who deals in their official state fruit -- blueberries, at the rate of 1.5 cents per pound. The resulting revenues -- more than $1.6 million to state coffers in the fiscal year that ended in June 2013 -- are used to promote the crop and agricultural research.
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower. The taxes are levied at the wholesale level, but naturally, they end up being passed on to the consumer.
The Yellow Hammer State is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco.
Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
"Merlyners" love their pollution-beleaguered Chesapeake Bay, the largest marine estuary in the U.S. In 2013, in part to meet federal pollution-control mandates, Free State legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Bay.
Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called "Rain Tax."
One way localities can calculate the tax is by measuring how much of a landowner's tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, Md., a heavily developed suburb of Washington, D.C., and landowners are up in arms.
Other counties have rebelled, opting to pay for the pollution control programs out of general funds rather than pass the cost onto landowners. Maryland’s Republican candidate for governor, David Craig, has made the law's repeal part of his platform for the 2014 election.
The Sunflower State is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is "cereal malt beverage") in convenience and grocery stores.
But Kansas also taxes "3.2" beer differently—and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kans., for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose.
Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to the Silver State ranging from 5 to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on.
There are exemptions, however, including this one, for businesses that provide " ... Instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen."
So your piano player can play "Feelings" softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in the Garden State.
Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax.
Businesses in D.C. that sell food or alcohol are required to charge customers 5 cents for every paper or plastic disposable bag they take. The store gets to keep a penny, and the balance goes to a government fund dedicated to cleaning up the Anacostia River.
Consumers and storekeepers grumbled at the program's debut in 2010. It has raised about $7 million so far, below expectations, but the program’s designers see this as a positive sign -- that shoppers have opted to bring their own reusable bags.
Most real estate agents and brokers receive income in the form of commissions from sales transactions. You're generally not considered an employee under federal tax guidelines, but rather a self-employed sole proprietor, even if you're an agent or broker working for a real estate brokerage firm. This self-employed status allows you to deduct many of the expenses you incur in your real estate sales or property management activities. Careful record keeping and knowing your eligible write-offs are key to getting all of the tax deductions you're entitled to.
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Heading off to college to broaden your horizons is exciting, but funding your education via scholarships? That's even better. Scholarships often provide a path to education that might not be feasible otherwise, which is why the Internal Revenue Service (IRS) can be generous in minimizing students' tax obligations. But sometimes scholarship money does count as income, and it’s better to find out now if your scholarship adds to your tax liability than to have a surprise later. Here’s how to decode your scholarship taxation.