Clothes Tax In State Budget Hurts Poor, But I Had To Do It, Gov. Paterson Says

The state of New York passed a new budget bill Tuesday night, containing a controversial sales tax on clothing. Governor Paterson himself admitted yesterday that the tax will hurt low-income citizens, but still had to be done. The tax goes into effect October 1^st.

"Begrudgingly, to get the budget done, we accepted the sales tax, but it's really going to hurt low-income people," he said.

The final budget bill, passed by the Senate Tuesday night after a long day of political horse-trading, calls for a 4% state sales tax on clothing and shoe purchases of $110 or less set to begin Oct. 1.

Controller Thomas DiNapoli, a Democrat, slammed the $136 billion spending plan as risky.

"All in all, this budget was not worth the wait," he said, noting it reeked of "dysfunction."

Nowhere was the dysfunction more apparent than in the Senate, where an upstate Democrat blocked completion of the budget for a month, with little to show for his efforts.

Continue reading at NY Daily News…

Questions for the Tax Lady: July 26th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Do all states have a sales tax?

No. Actually only 45 states, as well as the District of Columbia levy a general sale and use tax. Alaska, Montana, Delaware, New Hampshire, and Oregon do not impose a state sales tax. However, Alaska does allow for local sales taxes, and a few other states have a variety of specific excise taxes.

Question #2: If I have to move to a different state for a new job, can I deduct all of my moving expenses?

Depending on how far you have to move for the new job, and how long you work for the new employer, you may qualify to deduct qualifying expenses. Some of these expenses include packing, transportation, shipping costs, and storage bills. For more information on the job relocation deduction, check out this article on the Roni Deutch Tax Center – Tax Help Blog.

Why it's Time to Tax Internet Sales

From PC World.com:

Buying an $800 couch or television via the tax-free Internet can be nearly $80 cheaper than a purchase made in a high-sales-tax city like San Francisco -- such a deal. But the free ride is costing states and cities billions of dollars a year, and it damages local businesses that find it hard to compete.

The Main Street Fairness Act, introduced this month by Rep. Bill Delahunt (D-Mass.), would end the exemption for big Web retailers like Amazon.com and eBay that fear the change would be a body blow to their business. The Web sales tax issue has been debated and litigated for years, and it is hardly a popular cause, but with state and local governments deeply in debt, the chance to add a massive revenue stream may outweigh the political risks.

The seven-term Delahunt will not be running for re-election, but it would be unfair to see the timing as opportunistic. Delahunt sponsored a similar bill in 2008. I don't enjoy paying taxes any more than the next guy, but Delahunt was right then and he's right now. The Internet is no longer a baby that needs to be cosseted and protected from the real world, and favoring Internet business over brick-and-mortar ones via a tax exemption is not fair.

The budget hole provides the necessary opening for equal taxation

If you want government services, someone has to pay for them. The amount of money governments are losing due to the exemption is staggering. Uncollected use taxes (a use tax is pretty much the equivalent of a sales tax) for the six-year period ending in 2012 will range from $52 billion to $56 billion nationally, according to a 2009 study by economists at the University of Tennessee. New York City alone will lose at least $390.6 million in 2012; Chicago $229 million, they predict.

New York May Tax Clothing Sales to Narrow Budget Gap

Only a few days after New York raised the state tax rates on cigarettes, Governor David Paterson is now considering a 4% sales tax on clothing purchases under $110. The tax was put into place for 3 years once, but was repealed in 2006. Officials say the tax could raise $660 million annually.

“Taxes on clothes have been brought back to us” by legislators, Paterson said in an interview on New York City radio station WOR today. “It’s in the discussion phase.”

Lawmakers face a June 28 deadline set by Paterson for agreement on a budget covering the year that began April 1. If no agreement is in place by then, Paterson has said he will submit his own budget plan in an emergency spending bill, which lawmakers would have to approve, or shut down government.

Paterson’s $135.2 billion budget proposed earlier this year includes cuts in aid to school districts and a tax on sweetened beverages that lawmakers oppose. Additional taxes should close 10 percent to 13 percent of the deficit, or $920 million to $1.2 billion, Paterson said in an interview on radio station WGY in Albany.

Taxing clothing sales or finding revenue by other means is needed because lawmakers are balking at Paterson’s proposals to raise $710 million by allowing wine sales in grocery stores and imposing a new levy equaling 1 cent per ounce on sweetened beverages, the governor said.

Continue reading at Business Week.com…

How to Find a Low-Tax Place to Retire

For most of us “retirement” means lounging in warm weather, relaxing, and never having to work again! None of us want to pay higher taxes now; so why would we in our retirement?

USnews.com shares an article that goes over major taxes and tax breaks you should take into consideration when deciding to retire: Social Security, Pensions, Income Tax, Property Tax and Sales Tax. Read what they had to say:

Social Security. Most states no longer tax Social Security benefits. Some 35 states don't require residents to pay tax on Social Security income, according to an analysis by tax publisher CCH. Missouri and Iowa are in the process of phasing out their Social Security taxes. And Kansas residents with adjusted gross incomes of $75,000 or less are exempt from paying taxes on their Social Security checks.

Pensions. The tax treatment of pension income varies considerably from state to state. Some states, such as Pennsylvania and Mississippi, exempt all pension income from taxes. Other states exempt a portion of specific types of pension income. In Michigan, for example, all federal pensions and public pensions from specific states are totally exempt from tax. Private pensions were tax-exempt up to $45,120 for individuals and $90,240 for couples in tax year 2009. "When the economy was doing well, pension tax thresholds were moving out further and further, but now we're seeing a freeze on these threshold amounts," says Kathleen Thies, a CCH state tax analyst.

Income tax. Retirees who haven't saved enough to finance their desired lifestyle may need to work during their golden years. If your retirement plans include a part-time job, take a look at state income taxes. Seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. And two states, New Hampshire and Tennessee, tax dividend and interest income only.
Great advice: While states without an income tax can seem like an obvious choice for retirees, it's also important to look at property and sales taxes, which tend to be higher in income tax-free states. "If you're thinking of retiring in four different places, figure out the total tax cost in all the places and then you can make an effective comparison," advises Paul Erickson, a professor of accounting at Baylor University. "The property tax and sales tax could be higher than what you paid on income tax."

Property tax. The median property tax paid in the United States in 2008 was $1,897, according to a Tax Foundation analysis of Census Bureau data. But taxes paid ranged from a median of just $188 in Louisiana to $6,320 in New Jersey. "Most states give residents over a certain age some type of a break on their property taxes," says Rob Shrum, state affairs manager for the Tax Foundation. Some counties in Florida, for example, allow permanent residents age 65 and older within certain income limits a tax exemption of up to $50,000 of the value of their primary residence. Widows and widowers also get an extra $500 property tax exemption in Florida. Contact a state's department of revenue to inquire about property tax breaks for seniors.

Sales tax. Many cash-strapped states have been increasing their sales tax to raise needed funds. Seven states increased their sales tax rate in 2009, according to Vertex Inc. research. The average sales tax rate in the United States now stands at 5.5 percent. It may also be worth looking at the types of items and services that sales and excise taxes apply to. "Typically elderly people will be purchasing less cars or furniture or big-ticket items than someone with a growing family, but they still need to purchase food and clothing," says John Minassian, vice president of content development for Vertex Inc.

There are five states that levy no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. States with low taxes for shoppers include Colorado (2.9 percent) and Georgia, Hawaii, Louisiana, New York, and Wyoming (all 4 percent). California has the highest sales tax in the country at 8.25 percent in 2010.

Candy Tax Takes Effect June 1 In Washington

Some kids in Washington may be asking for a raise on their allowance next month, because effective June 1^st a state sales tax will be levied on all gum, and most candies. There are nearly 3,000 sweet products on the states list to be taxed, and only 263 candies that are not.

As this article from SeattlePI.com explains, the products that are included in the list versus those that will not be taxed has already created confusion for local residents.

For example, Three Musketeers will be taxed but Milky Way will not.

Starburst, Gummi Bears and M&Ms? Yes. Nestle's Crunch and Twizzlers? No.

How will you and retailers know which is which?

The state Department of Revenue has posted a list online of nearly 3,000 items that will be subject to tax ranging from coffee flavored hard candies to Wrigley's Winterfresh chewing gum. You'll find another 263 items that are not.

What's the difference? Basically, flour. If the candy you like is prepared with flour it will not be subject to sales tax.

Candy subject to the tax can be made with "sugar, honey, or other natural or artificial sweeteners combined with chocolate, fruits, nuts, or other ingredients or flavorings and formed into bars, drops, or pieces," according to information from the Department of Revenue.

U.S. Sales Tax Rates Hit Record High

There has been a lot of attention placed on Federal tax increases in the media, which has caused the steady rise of sales tax rates across the country to go nearly unnoticed. Between higher Internet sales taxes, and increases by local government agencies, some parts of the country are paying over 10% in sales taxes. As this article on Forbes.com explains, state governments across the country have raised sales tax rates over the past few years.

Vertex Inc., which calculates sales tax for Internet sellers, reports that the average general sales tax rate nationwide reached 8.629 percent at the end of 2009, the highest since the company started tracking data in 1982.

That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade. The highest sales tax rate in the country now stands at 12 percent.

During 2009 seven states and the District of Columbia raised sales tax rates, with one jurisdiction — North Carolina — actually doing it twice. Only four states hiked rates in 2008 and only one in 2007.

Given state budget problems, the 2009 state sales tax increases aren't surprising. States have also been raising income tax rates on the wealthy and on corporations and boosting excise taxes on alcohol and tobacco. With states now facing record budget shortfalls, more tax increases seem likely.

Continue reading at Forbes.com…

Oregon Approves Tax Increase on Top-Earners, Business

The State of Oregon approved a $727 million tax increase on businesses and high-earners this week, hoping to bridge some of the gap in the States budget. Well known for being a State with out a sales tax, it is not uncommon for Oregonians to approve taxes increases elsewhere. Checkout the following article on the development courtesy of Bloomberg.com.

Oregonians voted to keep taxes enacted by Democratic Governor Ted Kulongoski in July, according to a count of ballots cast by more than half of the state’s registered voters. Measure 66, which raises taxes on households earning $250,000 or more, passed by 54 percent. Measure 67, which increases corporate levies, garnered favor of 53 percent.

Legislators enacted the tax boost last year to help close a $4 billion hole that the U.S. recession opened in the state’s budget. The levies spurred a challenge from foes who gathered enough signatures to force the referendum. By targeting businesses and the wealthy, proponents parried resistance from voters who twice defeated tax increases in the wake of the 2001 recession.

“It’s a go-after-the-rich strategy,” said John Matsusaka, president of the Initiative and Referendum Institute at the University of Southern California in Los Angeles. “It shows that some voters have switched their minds and they’re more likely to go after the rich.”

The results are from an unofficial count of 1.12 million ballots released by the Secretary of State’s office by 11:15 p.m. local time yesterday. That accounts for 55 percent of the state’s registered voters, who cast ballots in a mail-in election that concluded yesterday.

Continue reading at Bloomberg.com…

Hawaii's Version of Sales Tax Hides Costs

For those of you who follow me on Twitter, you may already know that I just got back from a vacation in Hawaii last week. Which is why I was surprised to see that my home away from home was in the news this morning for their sales taxes that are likely to increase.

Currently, Hawaii’s sales tax on services is around 5%, however there are additional taxes on items that arrive by cargo ship. Since many items are shipped to the island, the actual tax paid on most products is significantly higher. Additionally, the state’s government is hoping to increase the standard 5% sales tax to a staggering 11-17%. Unfortunately, it seems to me that this drastic increase would hurt the massive tourism industry and thus harm the state’s economy more than it would help.

"We cannot tax ourselves out of this economic situation," said Carol Pregill, president of Retail Merchants of Hawaii. "When you increase costs to a retailer, the costs have to be passed on to the consumer."

According to the Associated Press, Hawaii lawmakers will consider legislation in January that would increase the general excise tax by 1 percentage point and exempt food and medicine. Currently, food and non-prescription medicine are among the items that are taxed.

The bill, which was estimated to raise $200 million annually for education, passed the state Senate this year and is now pending before the House. It faces hurdles because of business opposition and politicians' fear of raising taxes in an election year.

The excise tax pays for nearly half the state's budget, and tourist spending accounts for about one-fifth of total excise tax collections.

The Aloha State is already one of the most taxed states in the nation, but labor union leaders have said a tax increase could save government jobs and help students, whose school year was cut by 17 days annually due to budget cuts.

"People have this perception that we have only a 4 percent tax, and they don't realize we're already on an apples-to-apples basis one of the highest tax states," said Ronald Heller, a tax attorney and former member of the state Tax Review Commission.

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CA Tax Panel to Recommend New Business Tax

As my home state’s economic woes continue, the California tax commission has been working on ways to increase revenue. Reports suggest the commission is about to recommend a new business tax that has “never been tried on a wide scale in the U.S.” They will reportedly recommend repealing state sales and corporate taxes then try the all-new business tax instead. Check out the following clip of an Associated Press article discussing the announcement.

A commission charged with reforming California's tax structure will recommend repealing the state sales and corporate taxes, flattening the income tax rate and taxing businesses in a way that has never been tried on a wide scale in the U.S.

The Commission on the 21st Century Economy is expected to submit a sweeping report to the governor and Legislature Tuesday after spending a year looking for ways to stabilize California's volatile tax system.

A draft copy of the report obtained by The Associated Press said the commission will recommend California change its personal income tax structure to reduce the burden on the wealthy.

It also recommends replacing the state sales and corporate taxes with a new business levy that taxes net receipts, in an attempt to tax the value of all goods and services produced by businesses in the state.

Continue Reading at Google.com…

Back to School Sales Tax Holidays

As you may already know, every year various states and local government agencies have designated “sales tax free” holiday weeks or weekends. Some states feature these holidays before storm season, but many of them do it to help parents cut down on back to school costs. The first round of sales tax free weekends actually begin later this week, so to help my readers find out if their state is participating, I have organized the following list of sales tax holidays based on when they begin.

This Weekend (July 31 – August 2)

Georgia

Kicking off the back to school holiday, Georgia’s tax-free weekend begins this Thursday morning and runs through Sunday night. Any school supplies priced under $20 are exempt from the state’s sales tax, as well as clothing under $100, and computer equipment under $1,500. The rules on clothing purchases are somewhat specific and exclude most accessories. For more information check out the Georgia Department of Revenue’s website.

Mississippi

This Friday (July 31) and Saturday (August 1) in Mississippi all clothing and shoes under $100 will be exempt the state’s 7 percent sales tax. Unfortunately, the holiday does not include school supplies and this has angered many retailers. However, the legislature has no plans to make any changes to the current tax-free weekend. For more information, check with the Mississippi State Tax Commission.

Next Weekend (August 7 – August 9)

Iowa and Oklahoma

I decided to lump these two states together because they both have essentially the same tax free holiday on August 7^th and 8^th. Both states waive the sales tax on an all items of clothing valued at under $100. Unfortunately, the program only applies to clothing and not additional back to school supplies. For more information be sure to check the following links: Oklahoma and Iowa.

Alabama

If you buy any of the following items in Alabama either next Friday or Sunday then you will not have to pay the state’s sales tax rates. Items of clothing under $100, computers costing under $750, random school supplies under $50, and books under $30. Click here to find out exactly what purchases are included and which are excluded.

Louisiana

The sales tax holiday that takes place in Louisiana next weekend seems to be pretty general. According to Louisiana Department of Revenue, nearly all purchases of personal, tangible property valued at under $2,500 are excluded from the states sales tax. This does not include vehicles or items for business use.

Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Virginia

I’ve lumped these last six states participating in a sales tax free holiday next weekend together because they all have similar rules. The exclusion runs from Friday the 7^th, through the night of Sunday the 9^th. Although each state’s specific item limits vary widely, they each include clothing, school supplies, and computers. To see each state’s individual rules and limitations check out the following links: Missouri, New Mexico, North Carolina, South Carolina, Tennessee, and Virginia.

Future Holidays

Connecticut

If you purchase qualifying clothing and footwear in Connecticut between August 16^th and the 22^nd then you will not need to pay their sales tax. Unlike other states, their limit on clothing expenses is $300, but to learn more about their specific rules check out this link.

Texas

The final tax-free holiday of the back to school season occurs in Texas between August 21^st and 23^rd. According to their Window on State Government, all qualifying clothing, backpack, and school supplies valued at under $100 are eligible for the holiday.

While I was researching this article, I also came across this great article on About.com by Apryl Duncan with a handful of tax-free holiday shopping tips. If you live in one of the states mentioned above and are thinking of going out this weekend then I definitely recommend you check out Apryl’s article.

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look

For the first time in history, the United States Congress is rumored to be considering a value added tax (VAT), a sort of National sales tax. Check out the article below on the topic courtesy of the Washington Post.

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

"There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table."

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families.

Liberals dispute that notion. "You could pay for it regressively and have people at the bottom come out better off -- maybe. Or you could pay for it progressively and they'd come out a lot better off," said Bob McIntyre, director of the nonprofit Citizens for Tax Justice, which has a health financing plan that targets corporations and the rich.

A White House official said a VAT is "unlikely to be in the mix" as a means to pay for health-care reform. "While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers," said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag.

Struggling States Let Retailers Keep $1 Billion in Sales Taxes

From Wall Street Journal.com:

Cash-strapped states are forgoing a total of roughly $1 billion annually in tax revenue because of little-noticed laws that permit retailers to keep a slice of the sales taxes they collect for the government, according to a new study.

Laws in 26 states, largely dating to the era before computerized cash registers, allow retailers to keep a small portion of sales-tax revenue they collect to compensate them for the expense of gathering the funds. Thirteen of those states impose no ceiling on the total amount kept by retailers.

Good Jobs First, a Washington, D.C., nonprofit research group that is often critical of tax subsidies for large corporations, examined data on such compensation plans.

The report comes as many states are facing their most severe budget pressure in years. Adjusted for inflation, state tax revenues were down 2.6% in the most recent quarter, according to a report released this month by the Nelson A. Rockefeller Institute of Government. States are looking to fill multibillion-dollar budget gaps through a variety of tax increases and service cuts, including tightening Medicaid eligibility and raising tuition at public colleges.

"There may be times when states are flush, when they can afford to let this leakage happen, but now that the states are facing a squeeze, we think they need to take a closer and harder look at this revenue loss," said Philip Mattera, the report's lead author and research director at Good Jobs First.

Which States Tax Groceries?

The Tax Foundation has posted this interesting entry on which states tax groceries. According to the entry, “states that tax groceries (rate if not fully taxed): Alabama, Arkansas (3%), Hawaii, Idaho, Illinois (1%), Kansas, Mississippi, Missouri (1.225%), Oklahoma, South Dakota, Tennessee (5.5%), Utah (1.75%), Virginia (1.5% + 1% local option tax), and West Virginia (5%).”

However, it is important to note that “Idaho's income tax provides a $20 credit per person that is designed to partially offset the impact of taxing groceries. Also, our source for this data, CCH, cites a Kansas law that allows for a ‘limited tax refund available to disabled, elderly, and low-income households.’”

Tax Friendly States

CNN has put out a list of the most tax friendly states for 2007. The list was put together by comparing each states total state and local tax burden in 2006. That burden was determined by what residents pay in state and local income taxes, property taxes, sales taxes, luxury taxes and fuel taxes, among others. States that top the list include: Alaska, New Hampshire, Tennessee, Delaware, and Alabama. For the full list go to CNNMoney.com.

IRS Cracking Down On Abusive Tax Returns

Over the past week the IRS has been sending out IRS criminal investigators to tax preparation offices in seven major cities. The raids are part of the IRS’s crack down on tax preparation companies claiming thousands of dollars in phone tax refunds for clients who should only be getting $30 - $60 phone tax refunds. Investigators served search warrants for offices in Atlanta, GA; Dallas, Tyler, and Athens, TX; Riverside, California; Miami, Fla.; and New Orleans, LA. IRS agents have been temporarily closing businesses, and seizing computers and documents for evidence. The IRS is advising every one to stay away from tax preparers who make exaggerated claims about phone tax refunds. For more information check out the IRS’s website, or Yahoo News.

Top 5 Tax Audit Red Flags

CNN has compiled a list of the top five red flags in tax returns that might cause you to get audited. Included in the list is making too much money, giving too much to charity, taking too many credits, making careless errors, and failing to submit an alternative minimum tax schedule (if your earnings qualify). For more details on each of the five red flags, check out CNN.com.

IRS Issues Advice For Non Efilers

The IRS has begun processing the tax returns that claim the tax provisions enacted in December and is urging people who cite these deductions to not file using standard paper forms. These provisions include: State and Local General Sales Tax Deduction, Higher Education Tuition and Fees Deduction, and Educator Expense Adjustment to Income. The changes were made too late to appear on hard copy forms, so if you are going to claim these deductions then you will need to follow the IRS’s detailed instructions by clicking here.