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All Contents © 2019The Kiplinger Washington Editors
By David Muhlbaum, Senior Online Editor
| January 3, 2018
Funny thing about our federal system of government: There’s that complicated tax code that Uncle Sam keeps and the IRS enforces.
Then there’s an even larger patchwork of taxation schemes crafted by 50 state legislatures, all coming up with new ways to extract coin from their citizenry (or create social policy through tax breaks). Some of these regimens are, well, quirky.
We’ve found ten of the strangest ways states tax you and cut you a break—plus a few creative tax dodges—from across the land.
Eager to see married couples stay that way, South Carolina’s legislators have encouraged those tying the knot to take a premarriage counseling course by offering a tax credit.
A couple who sits through (together, natch) a minimum of six hours with a licensed professional or active member of the clergy (or their designee, if “trained and skilled in premarital preparation”) can take a $50 tax credit when filing jointly once married.
The law was passed in 2006. Keeping up with the times, in 2015, the South Carolina Department of Revenue updated the relevant tax form to change who could claim it from “a man and a woman” to “a couple.”
All states tax property: New Hampshire taxes it if you move it around. Well, if you move an awful lot of it around.
The Granite State is, of course, a rocky place, with plenty of quarries and gravel pits. And so the state has an excavation tax at a rate of $.02 per cubic yard of earth excavated (if more than 1,000 cubic yards are moved). While this is primarily aimed at industrial extraction (most states levy severance taxes on coal, oil and other mineral wealth), New Hampshire specifically notes that the tax is due even if you’re just giving away the dirt. So you can put up a “FREE FILL” sign and hope someone takes it, but you’ll still owe the tax man.
Courtesy Doug DeMuro/Oversteer
You don’t have to be a car nut to wonder why exotic cars often have Montana license plates. What’s going on? Did Montana mint a bunch of new oil billionaires?
Actually, chances are good the owner of that Ferrari or Bugatti doesn’t live in Montana. Heck, the car’s tires may never have even touched Big Sky blacktop. What’s happening here is an artful dodge meant to circumvent sales taxes and registration fees in high-tax states, such as New York and California, as well as the annual personal property taxes of some states, such as Virginia.
Imagine you’re in the market for a $500,000 car. (Go on. It’s a fantasy.) The sales tax alone on that car in New York would be about $41,000. Guess what Montana doesn’t have? A sales tax.
There are other states that don’t have a sales tax, but Montana doesn’t have any sort of car inspection, either. That’s given rise to a cottage industry of firms that will create a limited liability company that technically owns your car and registers it with the state of Montana.
Is this legal? Montana doesn’t seem to mind the revenue, but there could be real implications for getting car insurance—plus, your home state may come looking for you. First-world problems, indeed.
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's the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5% alcohol by volume), are taxed at a special rate of 8%. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. In Kansas, where states, counties and local municipalities can all levy sales taxes, that often ends up being more than the 8% alcohol tax. In Pomona, Kans., for example, the effective rate on the weaker “beer” would be 10%. 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’d better be ready to pay through the nose.
Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50% alcohol. Go over that, as with some “barrel proof” whiskeys or Cruzan 151 rum, 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 levy on the Cruzan to $2.27 per gallon.
Djzanni via Wikipedia
While most states have programs that provide some property breaks for the disabled, Hawaii’s laws are notable for calling out a specific ailment: Hansen’s Disease, better known as leprosy.
Why? For decades—in fact, until 1969—the state had a policy that banished thousands of sufferers to an isolated area on the island of Molokai; a handful still live there by choice, in what is now a national park. The disease is now curable.
Hawaii has sought to make amends for the policy, exempting the first $50,000 of real property’s value from taxation for those with the disease, the same break as for residents who are blind, deaf or totally disabled. Compensation Hansen’s patients receive for their ailment is also exempt from state income tax.
Entertainment venues pay a business tax to the Silver State ranging from 5% to 10% 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.
The West Virginia Turnpike has tolls. (They’re low by East Coast standards: $6 for all 88 miles, if you pay cash.) But the Mountain State tries to ease even this modest bite—for its own residents, at least. If they sign up for an E-ZPass transponder, the toll rate drops by one-third. What’s more (and this is where it becomes a tax issue), the state allows residents paying via E-ZPass to deduct the tolls they’ve paid for non-commercial travel.
The fine print: The tolls to be claimed must total at least $25 but no more than $1,200. But taxpayers can “look back” into previous tax years and claim any tolls paid in those years that exceeded the applicable limit.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in the Garden State.
New cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4% when registered, on top of New Jersey’s 7% sales tax. The tax dates to 2006, but notably, the dollar value hasn’t been adjusted since then, even as the average price of a new car has risen (it’s almost $35,000 now).
In the Land of Enchantment, making it to 100 years has a payoff beyond the chance that Al Roker will wish you a happy birthday on the “Today” show: You don’t have to pay state income tax anymore.
If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.
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