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Now that it’s January, people’s thoughts are beginning to turn toward taxes — both the ones they get stuck paying and the ones they might be able to avoid.
(Related: IRS Advice on Property Tax Prepayment Causes Widespread Confusion)
And while it often takes a skilled accountant — and this year might need one with preternatural abilities — to figure out the best ways to cut a client’s tax bill, or at least to avoid penalties for taxes that are inevitable, Kiplinger has come up with some state taxes and exemptions that even that preternatural accountant might not have thought of. That could come in handy in light of the new tax law’s stance on state and local taxes.
Here are 10 ways Kiplinger says states can tax, or exempt, their residents:
10. South Carolina—prenuptial counseling tax break.
Yes, you read that correctly: A couple planning to marry who take “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 use that to their advantage at tax time once they’re wed, by claiming a $50 tax credit. Of course they have to file jointly.
Legislators decided to try to make marriages last longer by passing this law in 2006.
9. New Hampshire — not dirt cheap.
This is a little different from property tax; it goes after any earth that moves (not necessarily under your feet).
According to Kiplinger, the numerous quarries and gravel pits in the state have inspired lawmakers to impose an excavation tax of $.02 per cubic yard of earth excavated, which kicks in if more than 1,000 cubic yards are moved. It is aimed primarily at those who carry out industrial extraction. Lots of states tax in-the-ground assets like coal, oil and other forms of mineral wealth once it’s removed from its earthly resting place. But in New Hampshire, you can’t even give the stuff away without paying taxes on it. Offering “free fill” won’t get you out of paying for the dirt again — even though you paid for it the first time when you bought the land.
8. Montana — car registration.
If in your wildest dreams you contemplate the joys of owning a Bugatti or, say, a Lamborghini — or even making like James Bond and cruising around in an Aston Martin — you already know you’re going to pay for the privilege. But what you might not know is how much the sales tax alone will cost you if you do. (Of course, theoretically if you have the money for a million-dollar-plus car, you’ll have the multiple thousands it will cost you in sales tax.) For instance, in Connecticut, a car costing more than $50,000 is taxed, when purchased from a licensed dealer, at a rate of 7.75%. So that $1.4 million Aston Martin will set you back another $108,500.
So if that sticks in your craw, you could always go to Montana, which doesn’t have either a car tax or an inspection requirement, for that matter. In fact, what it does have is a “cottage industry” of companies that will create a limited liability company for you that is the technical owner of your car and will register it for you with the state of Montana. But bear in mind that your home state may not be as fond of this idea as you are, and it could end up costing you anyway.
7. Kansas—cheaper hard stuff.
For some unknown reason, Kansas taxes lower-alohol beer at a higher rate than it taxes beer with a higher alcohol content. While it allows regular beer, with, say, a 5% alcohol level to be sold only in a liquor store, where it’s taxed at 8% along with all the other alcoholic products, the low-alcohol stuff (a.k.a. “3.2 beer”) can also be sold at convenience and grocery stores.
There it’s taxed at whatever the regular sales tax rate is, which can be higher than the tax at the liquor store. That’s because different counties and municipalities can also charge sales tax, which gets added on to the state rate. So if you buy 3.2 beer while you’re at the grocery store, it could be taxed at as much as 10% (which is the case, for instance, in the city of Pomona). Might as well go for the good stuff.
6. California — cheaper weak stuff.
Usually, alcoholic beverages are taxed by proof, with the higher getting the biggest tax penalty (hence Kansas being an oddity). California follows the herd on taxing potent potables higher than less-potent ones.
Distilled spirits below 100 proof (50% alcohol) are taxed at $3.30 a gallon. But some “barrel proof” whiskeys, and drinks such as Cruzan 151 rum, don’t come cheap — on them the tax is doubled to $6.60.
5. Hawaii — making reparations for exile.
There are property tax breaks for the disabled in a number of other states, but the state of Hawaii’s policy is unique in that it targets a specific disease — Hansen’s disease, a.k.a. leprosy — and a state policy for which it seeks to make reparations.
A century and a half ago, an isolated area on the island of Molokai became the state’s “leper colony,” and all the way up until 1969, any patients with the disease were actually banished there. While some do still live there, in what is now a national park, the state offers recompense in an attempt to make amends for its earlier harsh policy. Residents with Hansen’s disease are granted an exemption on the first $50,000 of real property’s value from taxation. Hawaii’s blind, deaf or totally disabled residents also receive this exemption. But in addition, Hansen’s disease patients’ compensation received for their ailment is also exempt from state income tax.
4. Nevada — turning down the music (and the taxes).
As one might expect, business venues with live entertainment are on the hook to the state for business taxes that range from 5–10% on admission fees, as well as on any food, drink and merchandise sales to their music-loving patrons.
But here’s the twist: 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,” gets the business an exemption from that tax.
3. West Virginia — toll exemptions.
While the West Virginia Turnpike has tolls (not big ones; $6 in cash will get you all 88 miles of it), state residents can deduct them from their taxes in various ways. An E-ZPass transponder will get residents a one-third discount on the toll rate; in addition, residents using an E-ZPass can deduct the tolls they’ve paid for noncommercial travel.
Of course there are rules about that, with any tolls to be claimed having to total at least $25 but no more than $1,200. However, taxpayers can “look back” into previous tax years and claim any tolls paid in those years that exceeded the applicable limit.
2. New Jersey — luxury/gas-guzzling cars taxed more.
Remember Montana’s thing, where you can buy a luxury car and (maybe) escape taxes on it? Well, New Jersey doesn’t give its citizens a break on ostentatious and inefficient vehicles. In fact, you’d better really want that car, since it will cost you more at registration. In a tax that dates back to 2006, new cars that cost $45,000 or more, or have a combined EPA fuel-mileage average of 19 or below, will cost their buyers an additional 0.4% when registered. And that’s on top of New Jersey’s 7% sales tax.
Oh, and if that $45,000 looks kind of low to you, bear in mind that it hasn’t been adjusted since the law went into effect. So those of you who are car-shopping should remember that even though the average price of a new car has risen to almost $35,000 now, that won’t get you off the hook if you decide to go for the deluxe model.
1. New Mexico — exempting centenarians.
People looking to retire who anticipate having a high income in retirement might want to consider New Mexico as a destination, particularly if they come from long-lived families. That’s because New Mexico exempts anyone who’s made it to the age of 100 from paying state income tax anymore.
But, of course, there are some conditions. You’ll have to have been physically present in the state for at least six months, and a resident of the state on the last day of the year. You also can’t be anyone’s dependent. If you do all that, you’re eligible. But you do still need to file, and if you’re married and your spouse doesn’t qualify, you will run into some complications.
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