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Smoking and driving seemed to outpace shopping as a state tax target in the past year, according to CCH Incorporated (CCH), in its annual State Consumer Taxes Survey. Only one state increased its sales tax, but eight states hiked cigarette taxes and five increased gasoline taxes.

Cigarette Taxes

Smokers have experienced significant increases in the cost
of cigarettes
this past year.
In addition to eight states increasing their taxes, Congress approved a 15-cents Federal excise tax increase as part of the 1997 Taxpayer Relief Act passed in August. As a result, 20 states and the District of Columbia register state cigarette taxes of 40 cents or higher, plus 39 cents in Federal taxes.

The biggest tax jump comes in Alaska, which increased its cigarette
axes by 71 cents per pack, making the state's $1-per-pack tax the highest
in the country. Maine doubled its
tax to 74 cents on November 1, 1997. Earlier, Oregon increased its cigarette
tax by 30 cents per pack (to
68 cents), Utah by 25 cents per pack
(to 51.5 cents), Massachusetts by
25 cents (to 76 cents), Hawaii by
20 cents (to 80 cents), New Hampshire by 12 cents (to 37 cents), and
Rhode Island by 10 cents to 71
cents per pack.

Following Alaska with the highest cigarette taxes: Washington (82.5 cents), Hawaii (80 cents), Massachusetts (76 cents), Michigan (75 cents), and Maine (74 cents).

Virginia and Kentucky, states
where tobacco is considered an important crop and industry, still maintain the lowest cigarette tax rates with 2.5 cents and 3 cents per pack, respectively.

Gasoline Taxes

In the past two years, 13 states have moved to increase gasoline taxes, which affected most of their citizens. In 1997, five states added fuel to the fire by increasing gas taxes [North Carolina (up 0.9 cent), South Dakota (up 3 cents), Utah (up 5.5 cents), Vermont (up 4 cents), and Wisconsin (up 0.1 cent)] since last summer. It was the second increase since mid-1996 for North Carolina and Wisconsin.

Connecticut, which still has the highest gasoline taxes in the country, reduced its tax rate by two cents (down to 36 cents) after a four-cents increase last year. Nebraska dropped its per gallon tax
by 0.8 cent.

The District of Columbia and 24 states now impose gasoline taxes of 20 cents or more. After Connecticut, the states with the highest rates include: Rhode Island (28 cents), Montana (27 cents), and Idaho (25 cents).

Sales Taxes

Only one state, Arkansas, raised its sales tax, from 4.5 percent to 4.625 percent in 1997. Utah's sales tax rate was decreased by 0.125 percent to 4.75

In an attempt to stem the flow of consumers shopping in neighboring New Jersey, which doesn't tax apparel, New York state and New York City tried suspending sales tax on apparel temporarily.

Mississippi and Rhode Island continue to maintain the highest sales taxes in the nation at seven percent. With a rate of only three percent, Colorado imposes the lowest state sales tax. Five states still do not charge a sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. (Delaware has a merchants' and manufacturers' license tax and a use tax on personal property leases.)

A Thin State Line

As is the case with apparel purchases in New York City versus New Jersey, neighbors' varying tax rates can help lure consumers across borders.

For example, Connecticut residents might be able to save on their 36-cents-per-gallon gasoline tax by heading for the border where New York charges only 8 cents per gallon. Wyoming neighbors--Idaho, Montana, Utah, Colorado, Nebraska, and South Dakota--can save from 11 cents to more than 15 cents by holding out for the Cowboy State.

Smokers can buy cigarettes in Virginia, with the lowest tax rate of 2.5 cents, rather than the District of Columbia, where residents pay 65 cents per pack in taxes. East Coast shoppers can head for Delaware, which has no sales tax, steering clear of Rhode Island, which along with Mississippi, has the highest sales tax in the nation. *

CCH is a wholly owned subsidiary of Wolters Kluwer U.S. For a copy of the survey, contact CCH Incorporated, 2700 Lake Cook Road, Riverwoods IL 60015-3888 or email mediahelp@cch.com.


By Emanuel Eichler, CPA, Cornick, Garber & Sandler, LLP

In order to improve the competitiveness of New York printers and mailers and to reduce the costs of direct mail advertising for New York businesses, the legislature amended the tax law to expand the exemption from sales tax for certain purchases of promotional materials and for certain services related to promotional materials.

In essence, the sale or use of promotional materials and related services delivered into New York by mail or common carrier without charge to the consumer is exempt from sales tax. Exempt items include catalogs, advertising brochures, flyers, and other written promotional material, as well as promotional items that are imprinted with a logo or other printed message. Related services, which would otherwise be taxable, are exempt when performed on or directly in conjunction with exempt promotional materials. These services include producing, fabricating, printing, or imprinting tangible personal property, mailing list services, and storage of promotional materials by the printer or mailer.

Under prior law, only promotional materials mailed, shipped, or otherwise distributed by a printer-mailer from within New York State to a destination out of the state for use outside the state were exempt from sales and use tax. Under the new law, which went into effect on March 1, 1997, printed promotional materials mailed or shipped to destinations within the state are exempt from tax when the following four conditions are met:

1. The items are mailed or shipped to customers or prospective customers
of the purchaser of the promotional material.

2. The items are delivered by the U.S. Postal Service, private delivery service, or by common carrier. The delivery can be arranged by either the purchaser of thepromotional materials or by a third party, such as a printer-mailer, acting on behalf of the purchaser.

3. The promotional materials are sent to the ultimate recipients free of charge.

4. The purchaser of the promotional materials furnishes the seller with a properly completed Form ST-121.2, Certificate of Exemption for Purchases of Promotional Materials. In order to be valid, the certificate must indicate the percentage of the purchased promotional materials that are exempt from sales tax.

The effect of the change in the law is illustrated by the following scenario. A New York retailer contracts with a printer-mailer located in New York to produce advertising catalogs to be mailed to customers and prospective customers in New York. In connection therewith, the retailer issues a properly completed Certificate of Exemption for Purchases of Promotional Materials to the printer-mailer. The retailer purchases blank envelopes from an office supply company to be used exclusively for the mailing of the catalogs. The retailer also contracts with the printer-mailer for the rental of several mailing lists and the printing of the company's logo on the envelopes. Under the terms of the agreement, the printer-mailer will also perform merge/purge services on the mailing lists, print and affix address labels on the envelopes, and arrange for mailing the catalogs with the U.S. Postal Service. Furthermore, since the actual mailing will not take place until several weeks after the catalogs are printed, the
printer-mailer agrees to store the catalogs until they
are mailed.

Since the contract with the printer-mailer for the printing of the catalogs satisfies the conditions for qualifying the transaction as the purchase of printed promotional materials, the printer's charges to the retailer are exempt from sales and compensating use taxes. Consequently, the additional services and materials purchased in conjunction with the production, storage, and mailing of the catalogs are likewise exempt.

The New York State Department of Taxation and Finance has issued a detailed Technical Service Bureau Memorandum, TSB-M-97(6)S, which gives a number of comprehensive examples to explain the new sales-and-use tax rules for promotional materials. Reference to the TSB should provide clear guidance in answering any questions that arise in this area. *



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