A Pack of Cigarettes, a Coke, and Some Taxes, Please

September 1, 2006

Alicia Hansen

Alicia Hansen

When people shop at 7-Eleven or any other convenience store, they probably don’t think too much about taxes. They grab a few items, pay, and hurry out. But a recent MSN Money article shows that if consumers paid a little more attention to the tax portion of their receipts, they might be in for a surprise.

The article calculates the “7-Eleven tax”—that is, the state-level sales and excise taxes (not counting local sales taxes) on 10 gallons of gas, two packs of cigarettes and $10 worth of goods— for all 50 states:

If you want to drive yourself slightly nuts, try to figure out why there’s so much variation among the states when it comes to taxing consumption.

Cigarette taxes are fairly easy: They tend to be lowest in tobacco-producing Southern states. But gas taxes aren’t necessarily lower in oil-rich states, and sales taxes are all over the map. In two cases (Washington and New Jersey), states with the highest sales-tax rates in the country are right next door to states with no sales tax at all (Oregon and Delaware, respectively).

The crazy quilt that’s resulted means that you can pay very different tax amounts for the same products, depending on where you live.

Think it all evens out? Consider this: A trip to the local 7-Eleven for a couple of packs of cigarettes, 10 gallons of gas and $10 worth of munchies will cost you $1.89 in state taxes in Georgia. The same taxes would total $8.62 in Rhode Island.

The article underscores the importance of state tax competition. High sales and excise tax rates can lead to interstate smuggling and large numbers of residents in border areas heading to other states to do their shopping. Some may even choose to move to lower-tax states. If rushed consumers slowed down and started analyzing their receipts on the way out of the store, perhaps lawmakers would be more attuned to their states’ sales and excise tax competitiveness.

To learn more, take a look at out sections on sales taxes and excise taxes.

Topics

Related Articles

Compare Tobacco Tax Data in Your State

Tackling America’s Debt and Deficit Crisis Requires Social Security and Medicare Reform

Testimony: The Role of Corporate Taxation in the European Union’s Future Tax Policy Mix

Tax Burden on Labor in Europe

How Stable is Cigarette Tax Revenue?

The U.S. Tax Burden on Labor Remains below the OECD Average

A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections.