The Most Outrageous Taxes

By Greg McFarlane | January 30, 2012 AAA



With 50 states, one federal district, 3,143 counties and county equivalents, and an ever-changing number of municipalities in the United States, there's little uniformity in taxes. Goods that are consumed tax-free in one place can be taxed to the point of effective prohibition in another. For varying reasons - some sensible, some less so - authorities have chosen to levy some curious taxes. Here are just a few examples.

SEE: The History Of Taxes In The U.S.

The logic behind most taxes specific to a product or service is that such taxes directly affect only the people who consume that particular good. The objective is thus to discourage people from consuming the good, or at least to collect enough tax revenue to offset any drawbacks to the good's consumption. Few people outside of the tobacco industry, for instance, are going to argue that there's a net societal benefit to smoking,

Smoking Tax
New York City in particular has taken cigarette taxes to unforeseen places, collecting a tax that dwarfs the price of the cigarettes themselves. The city and state levy a per-pack tax, meaning that if you buy a pack anywhere in the five boroughs, you'll remit 61 cents in prepaid sales tax, an additional $1.50 to the city, and $4.35 more to the state. Add the wholesale price of the cigarettes themselves, plus the additional markup retailers have to charge their remaining customers (after all, fewer people are now buying cigarettes in New York for some reason), and a pack can now cost you around $15. If that's not a test of some smokers' commitment to flirting with lung cancer, nothing is.

Parking Tax
Want to park your vehicle in a commercial lot in D.C.? That'll cost you 12%. Perhaps you live in Chicago and enjoy eating. The Second City is one of the few jurisdictions that charges a tax on groceries (2.25%.). Meanwhile Hawaii charges an accommodation tax to "transients," i.e. vacationers, of 9.25%, in addition to roughly 4% sales tax. The state of Hawaii has you where they want you: it's not as if you can vote with your feet, and drive over the border to enjoy the beaches in a neighboring state. (For more, check out What Countries Get For Their High Taxes.)


Pro-Athlete Tax
For years, professional athletes have been among the very few workers in private enterprise whose individual salaries are made public. Perhaps the owners disclose the numbers to prove a commitment to winning, or maybe the athletes themselves just enjoy having targets painted on their backs. Either way, in a society where seven- and eight-digit salaries for basketball and baseball players are common, it was only a matter of time before rapacious local governments started paying attention.

In 1991, the Los Angeles Lakers and Chicago Bulls met in the NBA Finals. The Bulls were a media phenomenon at the time, employing Michael Jordan at his professional zenith and a supporting cast of lesser millionaires. Since each Bull earned half his money on "business trips," the state of California reasoned it was only fair to take a cut. Other states and municipalities followed suit, and today's traveling pro athlete has to maintain quires of paperwork to cover his obligations.

Gambling Taxes
It's politically easy to inconvenience rich and famous people, especially ones who don't vote in the taxing jurisdiction (and who can't very well avoid the road trips), but an unintended consequence is that "jock taxes" also affect broadcasters, support staff, traveling secretaries and other team employees who don't necessarily make a lot of money. For activities more taboo than playing sports, various jurisdictions are ready with an outstretched palm and another form for you to fill out. For instance, the Internal Revenue Service charges 0.25% on wagers that any state or Indian nation has determined to be legal. If you think that operating in the black market excuses you from paying a tax, think again. The IRS also charges 2% on illegal wagers, even using the word "illegal" on its FAQ page. (The relevant document, Form 730, uses the less inflammatory language "Tax on wagers other than wagers described on line 4a.") As to why you'd ever confess to illegal gambling on your tax return, that's between you, your conscience and the IRS.

Drug Tax
There's one particular tax that's no longer collected, but is too wonderful not to mention. Up until 2009, the state of Tennessee attempted to thwart the illegal drug trade by unconventional means. In addition to search-and-seizure and prosecution, the state employed good old-fashioned "revenuing."

When the "crack tax" was authorized in 2005, it required sellers of cocaine, marijuana and, yes, moonshine to pay on the proceeds of their sales. Dealers were supposed to pay anonymously at the state revenue office, at which point they'd receive proof of payment. At the very least, the law didn't require the dealers to issue receipts to customers and state a refund policy.

And believe it or not, people actually paid. In the year after the "crack tax" was passed by the legislature, drug dealers contributed $1.8 million to the state coffers. Fortunately for the illicit drug underworld throughout Tennessee, a state court of appeals struck down the law as unconstitutional, ruling that a legislature can't outlaw a substance yet charge people a fixed amount for creating and selling it. Drug dealers in neighboring states then presumably rejoiced. To put the absurd cherry on a sundae of lunacy, after the law's repeal some dealers had their tax payments refunded. With interest. (To learn more, read How Taxes Affect The Economy.)

The Bottom Line
From illicit drugs to illegal gambling, some states make sure no one gets off the hook when it comes to taxes. Though this is certainly not an exhaustive list of all the strange taxes in the U.S., it's a good cross-section of the niche ways that the government can make people pay.

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