- Days left

State sales taxes continue to rise

×
If you flip on the news or thumb through a newspaper these days, it's no secret that the federal government is facing a mounting deficit. Spending has outstripped revenues for years now, and the current recession has cut deeply into the biggest source of income: taxpayers.

What hasn't been touted as much is how the same financial crisis is affecting states. As the federal government cuts back on funding state projects (although many, such as those related to education and homeland security, are mandated by the feds), states are scrambling to make up the difference.

Unfortunately, like the federal government, states are facing a similar dilemma: too much spending compared to revenue. The result? In the current fiscal year, at least 41 states are facing budget shortfalls in the current fiscal year. Even worse? Unlike the federal government, many state governments have laws on the books requiring that states operate in the black. Those "shutdowns" you keep hearing about? It's often because the state isn't allowed to spend money it doesn't have (apparently, a novel concept in government).

As states scramble to plug holes in the budget, many are focusing on a quick fix: increase the sales tax. Forty-five states currently have a state sales tax, with Alaska, Delaware, Montana, New Hampshire, and Oregon being the exceptions.

Last year, seven states (and the District of Columbia) increased their sales tax rate. Those states included the notoriously high-tax state of California, as well as the state of North Carolina, which felt so strongly about increasing the sales tax that it did it twice. The sheer number of increases is a record-breaker, according to Vertex Inc., a Berwyn, Pennsylvania company that has been tracking sales tax data in 1982. You can read its entire report here.

As of the end of last year, sitting atop the pack with respect to overall state sales tax rates is Tennessee, followed by California, Washington, Oklahoma and Louisiana. Of those states imposing a sales tax, Maine, Wisconsin, Wyoming, and South Dakota round out the bottom.

If you combine state and local tax rates, the city of Chicago leads the pack with a whopping 10.25% rate. Los Angeles isn't far behind with a 9.75% rate. Memphis taxpayers shell out 9.25% in sales tax. New York City checks in at 8.875%, while its neighboring Philadelphia recently boosted its rate to 8.0%, 2% above the rest of the state.

Of course, it's not just about the rate of tax -- it's also about what goods and services are taxed. Pennsylvania recently introduced legislation to lower the sales tax rate from 6% to 4%. Sounds good, right? Except that in return, the plan is to broaden the sales tax base, adding items like coal, candy and professional services such as legal services, accounting and engineering.

Expect to see similar maneuvering across the country as states grapple with how best to impose -- and in many cases "sneak in" -- additional taxes on already overburdened taxpayers. Sales tax increases are easy to implement and not generally barred by statute (many states prohibit localities from imposition or changes in personal income taxes).

Even better for legislators? Most sales tax increases are considered "invisible" by taxpayers, since there's no line item on a tax return emphasizing the rate. Since you pay at the register, a penny or two per dollar might, legislators hope, go unnoticed when you make it to the polls.

What do you think? Do you notice your state and local sales taxes when you shop? Tell us what you think:


Increase your money and finance knowledge from home

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

TurboTax Articles

Will Medicare/Medicaid be Impacted by ACA?

The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

What are 1095 Tax Forms for Health Care?

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

Add a Comment

*0 / 3000 Character Maximum