Consumer Taxes

The taxation system in the United States is very complicated due, in part, to the attempt by governing bodies to make taxation, across the board, appear reasonable and invisible.

Overall, there are two types of consumer taxes. Some are meant merely to raise revenues while others are designed to inhibit certain behavior. (In the income tax arena, however, which is significantly in the domain of the federal government, taxes and deductions and exemptions are used to actually promote certain behavior, such as saving money or buying a house.) In many cases, the behavioral control aspect of the tax has outweighed the particular tax’s revenue-raising function. For example, tobacco-producing states do not have cigarette taxes (Kentucky, 3¢, North Carolina, 5¢, and Virginia, 2.5¢) that are as high as those in states that, for various reasons, attempt to inhibit smoking (Maine, $1.00, Arizona, $1.18, Michigan, $1.25 and New Jersey $2.05).

Market forces also influence consumer taxes. For example, the tax on wines produced in California is low compared to taxes on wines produced in other states. If California taxes were close to the national average, then California wines sold in other states would have artificially inflated prices, thus hurting its marketability.

The taxes treated in this chapter are not exhaustive. Rather, they are representative of the most common and significant consumer taxes levied by states.