Quirky, Crafty Tax Law: A State-By-State Guide
This is a fun share. When I teach income tax courses, I usually begin the semester with a fun discussion of state tax law to loosen everyone up and start the discussion. Here’s my most recent compilation:
Alabama imposes a 10 cent tax on decks of playing cards containing fewer than 54 cards. The tax is usually avoided by adding a couple Jokers to a traditional pack of playing cards. Additionally, retailers need to pay an annual $2 license to sell playing cards.
The State of Alaska does not impose an income tax on residents. However, the IRS does allow Alaskan whaling captains to deduct up to $10,000 for whaling-related expenses as a charitable contribution on their federal returns. The deduction is considered a charitable contribution, even if the money isn’t paid to a charitable organization. This deduction is only available to Alaska residents, and the Alaska Eskimo Whaling Commission must give the whaling captain the responsibility of carrying out sanctioned whaling activities in order to take the deduction.
Want to buy a block of ice in Arizona? It’s taxable. Want ice cubes in your mixed drink? Those are not taxable. (Several other states apply this same logic to the taxation of ice.)
Arkansas’ tax code discourages body modifications. Tattoos, body piercings, and electrolysis come with a special 6% tax. If you must do the alteration, head out of state to avoid the tax.
Ah, California…..always a paradox. Fresh fruit is abundant, and everyone is health conscious. Yet, the state imposes a 33% tax on fresh fruit purchased from a vending machine. Buy your fresh fruit at the grocery store, or choose a Snickers bar from the vending machine to avoid the tax!
The state of Colorado imposes a tax on non-essential packaging included in the sale of certain food items. Napkins, disposable utensils, straws, and little packaged condiments are considered non-essential and taxed to the consumer.
Connecticut imposes a tax on disposable and reusable children’s diapers, as they are considered clothing. Adult diapers are not considered clothing and are exempt.
Delaware has mastered the “let the non-residents pay” policy when it comes to tax. The large corporate presence in Delaware brings workers across state lines; those non-residents then pay income tax to DE while using fewer state services than residents.
While the State of Florida does not impose an income tax, there are other tax oddities in the state. Florida has a vague “greenbelt law” which allows for lower property taxes for certain industries….agriculture, for example. Many property developers rent cows to graze on their land before the actual development begins, in order to qualify for the lower property tax rate. Disney World was able to reduce their tax bill by $1.5 million, thanks the use of rental cows.
When it comes to electric vehicles, Georgia has had mad mood swings. For the past few years, the state has offered a generous tax credit of $5,000 per vehicle purchased. Earlier this year, the state replaced that credit with a $200 license fee for anyone with an alternative-fuel vehicle
Hawaii has had a list of “Exceptional Trees” since 1975. Beginning in 2004, maintaining one of those Exceptional Trees on your property will allow you to keep a bit more cash in your pocket at tax time. Costs paid to a certified arborist to maintain one of the trees are deductible (up to $3,000) once every three years.
If you make more than two sales of tangible personal property per year in Idaho, you are required to collect and remit sales tax to the state. There are no exceptions for kids with lemonade stands or fundraisers selling donated merchandise.
Illinois imposes a 5% surcharge on candy, in addition to the standard 1% sales tax on food items. However, for tax purposes, it isn’t candy if it contains flour. So, no tax on a Kit Kat bar because they contain flour. M&Ms will cost you an additional 5%.
Indiana companies that design and make custom Halloween costumes are required to remit sales tax on the labor and design services provided to make the costumes. The Department of Revenue determined that the custom-made costume is taxable because the labor and design services are performed prior to the transfer of the property, and thus taxable as part of the product.
Iowa is one of several states requiring the possession of a drug stamp in order to legally sell or distribute drugs and narcotics. The stamp is obtained by paying a tax to the state. Thus, most drug dealers are guilty of tax evasion in addition to criminal charges.
Want to ride in a hot air balloon in Kansas? If it’s tethered to the ground it is considered entertainment and you’ll be assessed an amusement tax. If the rope is untied, it’s treated as air transportation and you ride tax-free.
Home of horse racing, Kentucky has a 6 percent sales tax on thoroughbred stud fees.
Each fall, Louisiana has a Second Amendment sales tax holiday. Residents can purchase hunting supplies, ammunition, and firearms free of state and local sales and use taxes.
The Maine Wild Blueberry Tax will add an additional 1.5 cents to each pound of wild blueberries sold. The tax collected is used to support wild blueberry research, and is usually passed along to the end consumers.
Maryland assesses a ‘flush tax’ on residents. In an attempt to protect the Chesapeake Bay, the Chesapeake and Atlantic Coastal Bays Restoration Fund is supported by a $2.50 a month fee on sewer bills and an equivalent $30 annual fee on septic system owners.
Alcohol is exempt from sales tax in Massachusetts. With that said, the state still requires residents to get a special permit if they bring in any amount of alcohol from outside the state
In 2012 Michigan eliminated the sales tax exemption for inmates in penal institutions. Prior to that, inmates were able to make purchases from within the prison system without paying sales tax.
In Minnesota, if an item of clothing is comprised of three times more fur than the next most valuable material used to make it, businesses are required to pay a 6.5 percent tax on whatever they receive for the sale, shipping and other charges.
During its dry days, the State of Mississippi taxed illegal liquor at 10%. It was up to the state tax collector to enforce the 10% Black Market Tax on the bootleg liquor; the tax collector received 10% of all tax collected as payment for his salary and business expenses.
The State of Missouri imposes a 4 percent sales tax on yoga classes.
Many out-of-state residents form LLCs in Montana simply to purchase RVs and avoid hefty taxes and registration fees in their home states. By forming the LLC, the non-resident can take advantage of the 0% sales and use tax on the RV, and pay the low vehicle registration fees to the State of Montana. High-tax states are working furiously to fill this loophole.
Nebraska‘s law requires drug dealers to purchase Drug Tax Stamps at a rate of $100 per ounce of marijuana, $150 per gram of controlled substances, or $500 per 50-dosage units of controlled substances that aren’t generally sold by weight. Although stamps can be bought anonymously, most people disregard the law.
Businesses in Nevada can avoid the 5 – 10% tax on revenue generated by live entertainment by keeping the noise level down. Per the law, the tax is not imposed if the music or commentary 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.
New Hampshire is an anomaly in that it lacks both sales tax and (most) income tax
New Jersey is one of several states to distinguish between pumpkins used for food and pumpkins used as decoration. If they’re painted, cut, or sold as decorations, pumpkins are taxable.
Turning 100 in New Mexico exempts you from state income taxes. To qualify, you must have lived in the state for six months, claim NM residency, and not be claimed as a dependent on someone else’s return.
When in New York if you take your bagel (unsliced) to go, there is no tax applied. If you request it be altered in any way (sliced, toasted, cream cheese), be prepared to pay the 8.875% tax.
In parts of North Carolina, pets are considered personal property and are taxed along with your other personal belongings. Cats or dogs aged four months and older will cost $10 if fixed, $75 if not.
While income and sales taxes are relatively low in North Dakota, the property taxes as a percentage of home value are among the highest in the country. (That’s all I’ve got – sorry, ND!)
During Ohio’s tax-free back-to-school shopping holiday a belt is tax-free, but a belt buckle is not. An athletic uniform is tax-free, but not sports equipment like cleated shoes or gloves. Halloween costumes are tax-free, but costume masks sold separately don’t qualify.
Oklahoma is one of a few states with a wagering tax. Gambling winnings are always taxable, but in Oklahoma, casino and track owners are required to pay a wagering tax….and it is most likely passed along to the consumer.
Oregon estimates it will collect between $17 and $40 million a year in taxes on the sale of marijuana.
In Pennsylvania anything that comes out of a compressed air vending machine or vacuuming vending machine is subject to a sales and use tax.
Since 1993, Rhode Island has been known as a nautical tax haven. The state does not charge sales tax on boats if delivery is made in Rhode Island, and the boat is registered in Rhode Island. As a result, many boats owned by residents of neighboring states with high sales tax rates are purchasing and docking their boats in Rhode Island.
Licensed butchers and meat packers in South Carolina can receive a $50 tax credit for each deer carcass donated to charity.
South Dakota imposes a Cider Tax of 28 cents per gallon of cider sold.
A Litigation Tax of up to $25 may be levied on Tennessee residents involved in civil and criminal court proceedings
Texas recently implemented a Pole Tax. Strip clubs in the state are now required to pay a $5 per-customer fee, if the club serves alcohol.
In 2004, Utah passed a 10 percent tax on admission and sales of merchandise, food, drink and services for sexually explicit businesses.
In 2015, Vermont passed a 6% tax on the sale of soda and sweetened beverages. There are exemptions for items purchased with food stamps, those that contain milk, soy, rice or other milk substitutes and those that contain greater than 50 percent vegetable or fruit juice. Additionally, all food and beverages sold in vending machines are subject to the 9 percent Vermont Meals and Rooms tax.
Residents of Virginia can save money by shopping on the annual back-to-school tax holiday. In addition to the typical clothing and school supplies, the tax-free items include fur coats, lingerie, garters belts, wedding attire, aprons, and corsets.
Washington charges a retail sales tax to any business that allows customers the ‘opportunity’ to dance. The law has been controversial, many complaining that medium sized clubs have been targeted while large venues and stadiums hosting concerts have not been required to pay the tax.
Like most things in Washington, D.C., tax law is bizarre and illogical. Sweetened drinks and gyms both carry a 5.75% tax.
Sellers of sparklers and similar goods in West Virginia must pay an additional tax on top of the state’s six percent sales tax to obtain a Certificate to Sell Sparklers and Novelties.
In Wisconsin, ice cream cakes and bars in which the retailer mixes ice cream and at least one other food item together becomes ‘prepared food’ and is taxed. However, when made by someone other than the retailer, it’s not taxable. Further, if it is mixed by someone other than the retailer (not taxable), but comes with utensils or napkins, it is considered prepared food and becomes taxable.
Finally, in Wyoming, charges for tools lost down oil and gas wells are no longer subject to sales tax. The tool must be lost or damaged beyond repair during the pre-production casing phase to qualify.