The American Legion Magazine | 7.1.13
By Alan W. Dowd

At their best, as Justice Oliver Wendell Holmes once observed, “Taxes are the price we pay for a civilized society.”

At their worst, taxes can create a disincentive to work, produce or build. “An unlimited power to tax,” as Daniel Webster famously said, “involves, necessarily, a power to destroy.”[i]

But somewhere in between those extremes, taxes can make us laugh or sigh or cry. Here are just a few examples from across the country.

Pray for Drought
In Maryland, the government is taxing “impervious surfaces”—roofs, driveways, basically any manmade structure that doesn’t allow rainwater to naturally soak into the ground. An outgrowth of a 2010 EPA mandate to reduce runoff into the Chesapeake Bay, this “rain tax,” as critics have dubbed it, will hit property owners in Maryland’s 10 most populous counties.[ii]

Maryland business developer Blair Lee projects that a typical homeowner will have to pay around $100 annually.[iii] But since businesses will get soaked—pardon the pun—“with five- and six-figure amounts because they own such large rooftops and parking lots,” he notes that taxpayers will get a double-whammy as car dealers, shopping centers, big-box retailers, office buildings and warehouses pass along the costs of complying with the rain tax to their customers.[iv]

The rain tax isn’t the only revenue source for the Chesapeake Bay cleanup. In what U.S. News and World Report calls “the flush tax,” Maryland has levied a $2.50 monthly charge on “residents who generate wastewater.”[v]

It All Depends
Speaking of waste, in Connecticut, children’s diapers are subject to tax but adult diapers are untaxed.[vi]

Indeed, inconsistencies in how taxes are applied cause lots of head-scratching. Consider how Alabama classifies and then taxes various kinds of playing cards. A “normal” deck of playing cards is levied a 10-cent tax (paid by the buyer) and a $1 fee (paid by the seller). But as U.S. News and World Report points out, this only applies to decks of 54 cards or less. So a game like Uno is not subject to the card tax.[vii]

Or consider how Chicago taxes various kinds of soda pop. A fountain soda is taxed three times higher than canned soda.[viii]

By the way, soda-pop guzzlers may want to stock up: Various states are mulling a 1-cent-per-ounce tax on sugary drinks, including sodas and energy drinks.[ix] And federal lawmakers considered a 3-cent tax on soda to help fund the new healthcare law.[x]

Food Fight
Moving from beverages to food, Maine levies a 0.75-cent-per-pound tax on wild-blueberry purchases, while in California fresh fruit is not taxed, unless it is purchased from a vending machine, in which case it carries a healthy 33-percent tax.[xi]

Food is an area where the taxman has lots of fun: According to Bon Appetite magazine, “39 of the 50 states have some kind of sales tax on candy, although what ‘candy’ means, exactly, is all over the map.”[xii]

In some states, candy with flour is considered a food item, while candy without flour is considered, well, candy. Thus, in Iowa, “Milky Ways and Kit Kats don’t get taxed, while the Milky Way Midnight, which just happens to ditch flour from the normal Milky Way recipe, is back under the taxman’s jurisdiction,” Bon Appetite quizzically observes.

As The Wall Street Journal reports, such inconsistent definitions are causing confusion from Colorado to Illinois. “Retailers in Chicago were unsure if Twix Bars—some of which contain flour and peanut butter—were food or candy,” according to the Journal. If the latter, they are subject to an extra 5-percent sales tax.[xiii]

Heated foods are often taxed while their unheated counterparts are not. Sliced bagels, as well as bagels with spread toppings, are subject to an 8-cent tax in New York, while unsliced bagels avoid the taxman’s greedy hand.[xiv]

“Pennsylvania, New Jersey and Iowa all tax pumpkins differently depending on whether they’re sold as potential Jack-O-Lanterns or as future pie fillings,” Bon Appetite reports. If it’s the former, it’s taxed.[xv]

In Colorado, as The Fiscal Times details, “cups are deemed ‘essential’ and therefore non-taxable.” But the lids and cup sleeves for those same cups are subject to tax.[xvi]

Follow the Law
It seems the IRS doesn’t really care if you break the law—as long as you pay your taxes. “If you steal property,” the IRS Tax Guide advises, “you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.”[xvii]

In a similar vein, the IRS requires a taxpayer to report “Income from illegal activities, such as money from dealing illegal drugs…on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”[xviii] Apparently, the taxman is unable to see the futility of expecting someone who is breaking drug laws to observe the tax law by disclosing he is breaking drug laws.

From 2005 to 2009, the state of Tennessee found a way around this conundrum: Drug dealers were allowed to pay taxes on their narcotics earnings anonymously at state revenue offices.[xix]

How the Grinch (Almost) Taxed Christmas
In 2011, the Department of Agriculture spawned a special “assessment” of 15 cents per “Christmas tree domestically produced or imported into the United States.” The purpose of the tax was “to strengthen the position of fresh-cut Christmas trees in the marketplace.” But in response to strong public outcry, the White House ordered Agriculture officials to delay implementation of the dreaded Christmas tree tax.[xx]

Taxed to Death
The estate tax—derided as the “death tax” by its many critics—was implemented at a time when wealth was beginning to gravitate and concentrate in the pockets of just a few mega-rich families. The idea was that such an over-concentration of wealth would not be healthy for America. “We can have concentrated wealth in the hands of a few or we can have democracy,” Justice Louis Brandeis observed, “but we can’t have both.”

Over time, like so many other forms of taxation, the reach of the estate tax grew to grab the hard-earned wealth of people who weren’t really rich at all—family farmers, mom-and-pop shop owners, lifelong savers and investors. Today, estates are taxed at 40 percent upon the estate-holder’s death, with a $5-million exemption ($10 million for couples).[xxi]

To be sure, in one sense, that represents a lot of wealth. But in another sense—using metrics that take into account the value of property, goods and assets that can be amassed over the lifetime of a business, career or marriage—it’s not an “unhealthy” concentration of wealth in the 21st century.

Moreover, while large estate holders use loopholes to shield their wealth from the estate tax, the tax often punishes small business owners, farming families and savers who don’t have the ability or wherewithal to exploit those loopholes.[xxii] This can have a ripple effect well beyond the legatee. As Curtis Dubay of the Heritage Foundation explains, a business’s assets can “make the estate appear valuable on paper and can raise the value of the estate above the threshold over which the estate is subject to the death tax.” That often forces survivors to liquidate some or all assets of the estate. “The forgone assets the business sells to pay the death tax lower its income-generating capability, forcing it to reduce wages or let go of some existing workers because of reduced capacity.”[xxiii]

Forbes economics writer Charles Kadlec calls the estate tax “dumb, unfair and immoral” because it’s “a double tax, falling as it does on whatever assets an individual has been able to accumulate after paying all of the taxes due on the income generated by their work and investments.”

Return to Sender
Speaking of dumb, the tax law requires certain taxpayers to declare the previous year’s state tax refund as income, thus making the refund subject to tax.[xxiv]

Up in Smoke
The federal cigarette excise tax is $1.01 per pack.[xxv] The average state excise tax on cigarettes is $1.48 per pack.[xxvi] Taxes on cigarettes are ostensibly aimed at dissuading non-smokers from picking up this unhealthy habit and encouraging smokers to kick it. But the dirty little secret is that the government needs revenue from cigarette sales to fund various programs, including Medicaid. As The New York Times concluded not long ago, federal and state governments are “hooked on tobacco-tax billions.”[xxvii] The White House has even proposed increasing the federal tax on cigarettes to $1.95 per pack to fund a $66-billion preschool program.[xxviii] Doubtless, state and federal bean-counters are hoping this anti-vice tax is unsuccessful. Otherwise, there will be no revenue to fund these programs.

Necessary and Proper
Perhaps the lesson in all this tax silliness is that taxes should be levied to raise revenue for the necessary functions of government—defending our sovereignty and coining money, building roads and bridges, keeping cops on the beat and bad guys behind bars, ensuring the general welfare—not to score political points or punish legal activities.

And perhaps it’s time yet again, as President Kennedy urged in 1963, to “restore an idea that has helped make our country great—that a person who devotes his efforts to increasing his income, thereby adding to the nation’s income and wealth, should be able to retain a reasonable share of the results.”[xxix]







[vii] U.S. News and World Report The Ten Strangest State Taxes, http://money.usnews.com/money/personal-finance/slideshows/the-10-strangest-state-taxes/2






[xiii]http://blogs.wsj.com/economics/2010/05/17/candy-taxes-struggle-to-define-candy/; http://www.news10.net/news/article/238898/339/12-of-the-most-bizarre-taxes-from-around-the-country




[xvii] IRS, 2012 Tax Guide, http://www.irs.gov/pub/irs-pdf/p17.pdf

[xviii] IRS, 2012 Tax Guide, http://www.irs.gov/pub/irs-pdf/p17.pdf, p.94.



[xxi] Wall Street Journal, “Death Tax Made More Deadly,” April 15, 2013.



[xxiv]http://blog.turbotax.intuit.com/2007/02/24/is-my-state-tax-refund-taxable-and-why/ ; State Tax Refund, 1099-G, http://www.irs.gov/publications/p525/ar02.html#d0e5298