Personal Finance > Taxes
Strangest state tax laws
You'll pay taxes on illegal drugs in 'Bama and on Pepsi in Chicago. But wait, there's more.
January 10, 2003: 2:34 PM EST
By Annelena Lobb, CNN/Money Staff Writer

NEW YORK (CNN/Money) Like it or not, taxes are a fact of life. From paycheck deductions to the added cost of eating out, it's the price we pay for social programs, highway maintenance and public schools.

Not all taxes, however, are rooted in common sense. Some, in fact, are downright bizarre.

In certain parts of the country, you'll pay the government special taxes for takeout food, for buying a deck of cards, or even for possessing illegal drugs. And with state budgets becoming increasingly pinched, experts say miscellaneous taxes are on the rise -- from a new "jock tax" in Cincinnati to a 200 percent increase in sales tax on liquor in Alaska.

"Many of these taxes are desperate measures states [undertook] to raise funds," said John Barry, chief economist at the Tax Foundation, a Washington, D.C.-based nonprofit.

Here are some of the most peculiar taxes around.

Illegal drug tax

So you pay a tax and get prosecuted? Well, yes. Seventeen states, including Alabama and North Carolina, tax people involved in illegal drug transactions, from use to possession to distribution and sales. The rate varies according to the substance you (well, not you, of course) have, said David Hoffman, a Tax Foundation economist who studies miscellaneous taxes.

In Alabama, marijuana gets taxed at $3.50 a gram. (Other tax values are determined from the marijuana tax values -- if a gram of cocaine, for example, costs 10 times what a gram of marijuana costs, then cocaine would be taxed at 10 times the tax for marijuana, or $35 a gram. Confusing, but true.)

In North Carolina, the rules are stranger still. Within 48 hours of obtaining a fixed quantity of illegal drugs or alcohol, buyers must purchase stamps from the state and affix them to the controlled substance. If the person gets busted without stamps, they still must pay the tax.

Those who purchase the stamps need not provide personal identification information to the Department of Revenue. Still, there aren't lines outside the door.

Since the law was enacted in 1990, just 63 people have purchased drug stamps -- many of whom are believed to be collectors. Meanwhile, the state has assessed some 60,000 fines for failure to display the stamps, collecting nearly $68 million in revenue to date.

Oh, by the way, according to the Unauthorized Substances Tax Web site, purchasing stamps doesn't give you legal possession of the drugs. It only fulfills your "civil unauthorized substance tax obligation." Stamps or no stamps, you're still breaking the law.

Jock tax

Cities and states also levy taxes on the income earned by athletes, entertainers (OK, not just jocks) and their various entourages. Any money earned while playing in that particular city or state gets taxed. California levied the first jock tax in 1991, on athletes from Chicago, right after the Chicago Bulls beat the L.A. Lakers. (Chicago quickly responded in kind.)

Cincinnati just passed a jock tax two weeks ago of 2.1 percent, intended to help close a $35 million city deficit, Hoffman said.

"If the Dallas Cowboys play the Bengals in Cinci, and they're in town Friday through Saturday, then each player, as well as everyone else traveling with their team, will be taxed on three days salary and the Cowboys are from a state with no income tax," Hoffman said.

Today, every state with a professional sports team and an income tax has a jock tax.

Playing card tax

If you want a deck of cards in the state of Alabama, be prepared to shell out an extra dime. The state government has levied a 10-cent tax on the purchase of a playing deck that contains "no more than 54 cards". If you object to this, get your playing cards in a different state, or buy a deck with an extra joker.

Wagering tax

Speaking of cards and chips and dollar signs, most people know they'll have to report gambling winnings and pay the piper on April 15. But you might also pay a tax just for entering a casino, even if you don't gamble. Consider it a cover charge.

The "wagering tax" typically is levied on the state level, in states like Pennsylvania, West Virginia and Illinois, which all have legalized gambling. It's initially levied on casino or track owners, Hoffman said. But they pass it along to consumers in admissions prices. Sometimes consumers pay the tax directly: in Illinois, for example, the gross receipts of riverboat casinos are taxed, and so are individual admissions.

Takeout tax

Would you like fries with that? The City of Chicago has levied a 0.5 percent charge on all carryout food, technically called the "anti-litter" tax. This applies to everything from your Happy Meal to a vendor-sold hot dog. Washington, D.C., has the takeout tax as well.

Fountain soda drink tax

This one also hails from Chicago. If you buy a "fountain soda drink" your basic Coke or Pepsi, as long as it's not from a can or bottle you'll pay a flat rate of 9 percent on it to the city of Chicago.

Amusement tax

Ever wondered about the extra tax you pay on stadium seats? That's the amusement tax, often levied at both city and state levels. Most states, including Massachusetts, Virginia and Maryland, and cities like New Orleans, have amusement taxes on tickets sold at any venue with more than 750 to 1,000 seats.

Amusing, isn't it?  Top of page

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