How the PATH Act Affects Your Small Business

Federal taxes have for years been one of the top headaches for small businesses with seemingly no end in sight. Among countless shifting tax provisions, retroactive extensions, and a large helping of legalese involving even the simplest of tax rules, small business owners are now required to spend a tremendous amount of time each year complying with federal tax regulations and filing their returns.

Just how much time? Well, a recent Small business Taxation Survey, conducted by the National Small Business Association (NSBA) reported that 22 percent of small business owners devote as many as 120+ hours a year, or four full work weeks, to their taxes. This includes activities such as: completing forms, keeping up with changing regulations, as well as organizing receipts and paperwork. A full one third of the small businesses surveyed spend more than 80 hours per year on their federal taxes.

Even as the current administration in Washington considers a massive tax overhaul that will supposedly make complying with federal tax regulations a whole lot easier and cheaper, the has been at least one recent bright spot: the PATH Act enacted at the end of 2015.

The PATH Act makes more than 20 tax breaks permanent in addition to retroactively extending a slew of others for two or more years. In some cases, these include significant modifications. Some of the extensions, such as those involving equipment purchases and payroll, give small business owners some breathing room to plan for and thus maximize certain tax deductions.

Here are three main areas where the PATH Act may positively help your business:

1. Equipment Purchases. With the PATH Act, the price of big equipment purchases can be fully written off in the year they are put into service instead of taking small deductions over a period of five years. Under Section 179, business owners are allowed to deduct up to $500,000 for either new or used equipment purchases. The deduction limit starts to phase out when qualified property is more than $2 million. Both deduction amount and limit will be adjusted for inflation starting in 2016.

On top of this, the PATH act offers a second, “bonus depreciation” of 50% that can be used after the Section 179 deduction has been taken. This deduction dwindles, however, in coming years to 40% in 2018 and 30% in 2019. In 2020, the deduction will expire completely.

2. Payroll. Businesses that hire employees from certain categories, such as military veterans or those who qualified for long-term unemployment, may be eligible for the Work Opportunity Tax Credit. The PATH Act extended the credit through 2019 and added a 40% credit up to the first $6,000 in wages for businesses who hire qualified long-term unemployed individuals who have been without work for 27+ weeks.

3. Research & Development. The PATH Act permanently extends the Research and Development Tax Credit. This credit helps small businesses recover some of the costs of R&D including the expenses of obtaining a patent. Beginning in 2016, eligible small business with $50 million or less in gross receipts can claim the credit against alternative minimum tax (AMT) liability.

On top of these incentives for small businesses, the PATH Act also offers numerous individual tax breaks that may indirectly help small businesses as well. For more information, consult the IRS’s online tax center.

The IRS Thinks These Small Business Owners are Tax Cheats

Calculator and TaxesFor as long as it has existed, the Internal Revenue Service (IRS) has been in a heated hunt-down for Americans who under-report income and who evade paying taxes outright. Why such a persistent effort? Consider this: for 2006, the most recent year for which data are available, the IRS collected 86% of what it was owed in taxes. That may not sound too bad, except when you realize that this works out to an estimated $385 billion shortfall- the vast majority of which came from under-reporting income.

It was recently reported by The New York Times that one of the easiest ways to cheat on your taxes is to be the sole proprietor of a Schedule C business. The IRS knows this, but realizes as well that finding these tax cheats is not so easy.

In an effort to crack down on tax evasion and focus their auditing, the IRS conducted a survey of sole proprietors with Russell Research in the beginning of 2012. The investigators divided a representative sample of sole proprietors into those most and least likely to pay their full tax burden and then made comparisons between the two groups. The results of the study were published earlier this year, and they provide some interesting insight into which sole proprietors are most likely to be tax cheats. Here is a brief summary:

  • Men were less likely than women to be tax compliant. While males made up 59 percent of the more compliant taxpayers, they composed 65 percent of the less compliant ones.
  • The more employees there were, the less compliant the owners (average employment of 6.6 versus 3.6).
  • Owners of professional, scientific and technical service businesses, health care and social assistance, and arts, entertainment and recreation businesses were more likely to be compliant than owners of construction, and real estate and rental and leasing businesses.
  • Owners of businesses with lower sales tended to be more compliant (average sales of $47,000 versus $87,000).
  • Owners of businesses with lower expenses tended to be more compliant (average expenses of $12,000 versus $50,000).
  • Owners who complete their own tax returns on their own tended to be more compliant (32% percent of the more compliant sole proprietors, versus only 21% of the less compliant ones). Those in the low-compliance group also expressed less trust in tax preparers. Although most used a tax preparer, they were less likely to follow the preparer’s advice.
  • People who were more cynical about the tax system, those who had more negative attitudes about the IRS, and those who were more skeptical about the value of government activity, tended to be less compliant.
  • Respondents from the low compliance groups tended to be suspicious of the tax system and its fairness, whereas those from the high-compliance communities viewed govern­ment positively.

If you happen to fall into one of the groups most likely to cheat on your taxes, be warned: the IRS is stepping up its efforts to catch those who try to shake their tax obligation. This means conducting more audits specifically among these “high risk” groups. Given this, make sure you do your best to be prepared for an audit if it does come. This means making your best effort to prepare your tax documentation, staying current with the major tax laws (or hiring someone else who will), making sure your business documents are complete, clear, and accessible, and making an effort to accurately fill out your tax return forms.

Early Tax Prep Make the IRS…Less Taxing

“Nothing can be said to be certain, except death and taxes,” wrote Benjamin Franklin in 1789. So, so true. However, proper preparation for taxes can make the process a bit less painful, and a whole lot easier.

Every year, from about mid-March, millions of Americans begin the mad rush to prepare all of the paperwork necessary to file a month later. For small business owners it can be next to impossible getting the tax work done in time, while maintaining ‘business-as-usual.’

Besides the obvious extra time and hassle that nobody really wants to deal with focusing on taxes every spring, there are many other significant advantages to beginning the tax preparation several months in advance, some of which can be quite lucrative.

First of all, a meeting with your accountant in the middle of the year allows you to assess the financial situation of your business in relation to your expectations at the beginning of the year. If you are exceeding your projected goals, you can find ways to reduce the projected taxes by purchasing equipment necessary for your company that may not have been budgeted for. If your profits are not meeting expectations, reducing your estimated taxes will help you not over-pay the IRS in April.

Knowledge is the key. Knowing exactly where your business stands will allow you to pay only the taxes that are required – overpaying your taxes can only be recovered when you file the following year, and to avoid underpaying and facing the fines that can accompany even an inadvertent mistake in that realm.

According to the US Small Business Administration, nearly 90% of small business owners turn to tax professionals to prepare their annual returns rather than doing their own taxes. If you are already working with an accountant who is aware of the tax laws relevant to your business, as well as what changes can be expected in tax laws in the coming year, then it only makes sense to meet with the accountant well enough in advance to make use of the laws that can help your business spend as little as possible on its taxes.

This need not be the case. There are several reasonably simple, non-time-consuming steps can help you can file your annual tax returns much more easily, with far less stress, and most importantly, without taking you away from the daily operations of your business and it just takes a few hours per month.

Of course, this does not discount the time factor. Millions of Americans – individuals and businesses – wait until the last minute to file their tax returns. Once the panic sets it, there is no time to focus on anything other than getting all of the relevant paperwork organized and fast. Small business owners can do themselves a tremendous service by keeping track of records, making certain they’re well organized and easily accessible. This includes sales records, inventory, returns and allowances, expenses, payroll, travel, advertising, office supplies, rent and utilities.

Spending an hour or two every month to keep all of these records up-to-date in a well-organized filing system will make the process go much more smoothly, thus enabling you, the business owner, to focus on much more important things – like running your business.

Obama Care is Coming

Change is a-coming on the health care front. Obamacare is making sure of that. Otherwise known as the Patient Protection and Affordable Care Act, this 2400-page bill, passed into law in 2010, is confusing and worrying an awful lot of small business owners.


What Does it Mean for Business ?

The Act originally stipulated that every American citizen must have health insurance as of January 1, 2014; the date has since been pushed forward to the beginning of 2015. The impact for business? The bill also requires employers to make quality, affordable health insurance available to their full time workers. This simple task sounds like it carries the potential for a huge – and perhaps expensive – hassle. But a closer look at the details of the bill will give a clearer perspective on the situation.

How Small is Small Business and What is Full Time?

Small businesses are exempt from the requirement to provide health insurance, but must inform their workers about the Act. According to the PPACA, a small business is one that employs fewer than 50 people full time. Should an enterprise of this size voluntarily opt for employee health insurance, it must comply with the new law. Employers of more than 50 workers are subject to fines if they fail to come through. For the purpose of the PPACA, a full time employee is defined as working at least 30 hours weekly or 130 hours monthly, on average.

Are You Exempt?

At this point, you may be breathing a sigh of relief if you calculate that you have fewer than 50 full time employees. Not so fast. If your business is seasonal – say a tourist gift shop or a ski resort – the folks in your employ can be assessed as FTE (full time equivalent employees). FTEs, who average 120 hours of work in a month, or work for a period longer than 4 months, are also eligible for the health care provision.

Confused yet? There’s more. Less-than-50-employee enterprises with a common owner may be grouped together for purposes of this law.

What’s in Store?

Marketplaces for health insurance, called “exchanges,” are part of the plan, to be run by individual states. These will include Small Business Health Options Program exchanges for firms with fewer than 100 employees. SHOP, as it is dubbed, will facilitate small businesses cooperating to increase their joint health insurance purchasing power. However, it’s up to the states to decide whether to limit SHOP eligibility to businesses with <50 employees rather than <100.

Good News

The good news is that once an enterprise is part of SHOP, it may continue to participate even if the number of its employees increases to over 100. More good news: a small business tax credit is available for two years to cover 50% of the cost of health insurance premiums on plans purchased through SHOP. Even more good news: PPACA will make affordable health insurance more available to small business owners themselves. Eighty-three percent of entrepreneurs who presently have no coverage whatsoever will become eligible for health insurance under the provisions of the Act.

Shop Around

Despite the appeal of purchasing insurance via the Small Business Health Options Program, it pays to shop around. Self-insurance may turn out to be a better choice in terms of price and/or benefits.

The Bottom Line

Looking at the facts regarding its impact on small business, it seems that Obamacare, far from being a bogey bill, may actually be of benefit to employers as well as employees. As Richard Lorenzen wrote in Forbes recently, “The Affordable Care Act … enables us to provide a better life for those who help make our success possible everyday.”


For detailed information on the provisions of the PPACA, see the US Department of Labor’s Affordable Care Act Regulations and Guidance.

Take a Look at What 10 Big US Companies Are Paying in Taxes

As countless small business owners wonder what the new year will bring to their profit margins- a year already colored by the looming specters of the fiscal cliff and healthcare reform- it seems several big businesses are sitting quite cozy, indeed. In September of this year, a congressional report put a spotlight on maneuverings that allowed two tech giants, Microsoft and Hewllet-Packard, to avoid paying taxes on billions of dollars in offshore profits.

These companies are certainly not alone. The corporate annuls are filled to the brim with sophisticated tax dodging that often goes hand-in-hand with enormous outlays of money dedicated to political lobbying.

How bad is it?

Here are stats on ten of the most profitable companies in the US: how much they made last year; how much they actually paid in US taxes (keep in mind that the official corporate tax rate is 35%); how much they spent on political lobbying.

Judge for yourself…

1. Exxon Mobil

Pre-tax earnings 2011: $73.3 Billion

Actual Federal US Taxes Paid: $1.5 Billion (2%)

Total Lobbying Expenditures: $9,870,000


2. Chevron

Pre-tax earnings 2011: $47.6 Billion

Actual Federal US Taxes Paid: $1.9 Billion (4%)

Total Lobbying Expenditures: $7,080,000




3. Apple

Pre-tax earnings: $34.2 Billion

Actual Federal US Taxes Paid: $3.9 Billion (11%)

Total Lobbying Expenditures: $1,430,000




4. Microsoft

Pre-tax earnings: $28.1 Billion

Actual Federal US Taxes Paid: $3.1 Billion (11%)

Total Lobbying Expenditures: $5,656,000



5. JPMorgan Chase

Pre-tax earnings: $26.7 Billion

Actual Federal US Taxes Paid:$3.7 Billion (14%)

Total Lobbying Expenditures:  $4,900,000


6. Wal-Mart

Pre-tax earnings: $24.4 Billion

Actual Federal US Taxes Paid: $4.6 Billion (19%)

Total Lobbying Expenditures: $4,650,000


7. Wells Fargo

Pre-tax earnings: $23.7 Billion

Actual Federal US Taxes Paid: $3.4 Billion (14%)

Total Lobbying Expenditures: $5,290,000


8. ConocoPhillips

Pre-tax earnings: $23.0 Billion

Actual Federal US Taxes Paid: $1.9 Billion (8%)

Total Lobbying Expenditures: $2,359,000


9. IBM

Pre-tax earnings: $21.0 Billion

Actual Federal US Taxes Paid: $0.268 Billion (1%)

Total Lobbying Expenditures: $3,560,000


10. General Electric

Pre-tax earnings: $20.1 Billion

Actual Federal US Taxes Paid: $1.0 Billion (5%)

Total Lobbying Expenditures: $15,550,000


Sales Tax and Your Online Business: Five Things You Should Know

Now that taxes are still fresh on the minds of many small business owners, I figured it would be a good time to write a post on sales tax for online businesses. Countless small online business owners may be uninformed when it comes to properly recording, collecting, and paying state sales taxes on their online sales. Unless your online business is registered and/or selling within the states of Alaska, Delaware, Montana, New Hampshire, or Oregon, there is a good chance that you are conducting taxable transactions and this can prove to be a costly mistake- especially as cash-strapped states seek ways to cover their budget shortfalls.



If you are operating your business online, then here are five things you should know about recording, collecting, and paying state taxes:

1. The sales tax landscape is complex. Currently, there are more than 11,000 tax collection districts in the U.S. (that’s including various cities and counties, each with their own local tax rate), so determining and collecting sales tax on your online transactions can get tricky. For this reason, it is vital that you seek out professional advice on how to pay off your state sales tax obligations. This may mean asking a qualified accountant or tax attorney or consulting with informed members of your state’s Department of Revenue (you just may have to work a bit to find those “informed members”).

2. Register your business with your local Department of Revenue. Assuming that you already have a Federal ID number for your business, the first step in reporting and paying your state sales tax is registering your business with your state’s Department of Revenue. After doing so, you will receive a state sales tax permit which will allow you to begin collecting sales tax from your customers.

3. For multiple locations, use accounting or tax software. If you are selling in multiple locations, you need to calculate the correct sales tax for each location. This includes any cities or counties within your state that have distinct tax rates as well as taxable sales in other states. To assist you in this complicated process, you should use a good accounting software program, such as QuickBooks, which will generate up-to-date sales tax information and calculations.

4. Some transactions are exempt. Many online transactions are exempt from sales tax, but you will need to do your research because the definition of what qualifies and when will be different across state lines. Some examples of exempted transactions include: sales to resellers, food sales, and transactions where the buyer is located out-of-state.

5. Keep accurate and clear records. Though the enforcement of paying state sales tax obligations has been lax up till now, as I mentioned above that may be changing because so many states are hurting for cash. There has also been an initiative, that has been gaining traction as of late, for the establishment of a unified online sales tax system. You can read more about it here.

5 Business Tax Tips to Make Your Tax Filing Easier

If the thought of filing your business taxes makes you head for a bottle of Tums, then take a look at these five business tax tips to simplify the process. Learn how gain more control, take advantage of free or low-cost tax tools, and get educated.

 (Image Credit)

1. Maintain clear records and know what supporting documents to keep. The first rule of business taxes is making sure that you have an effective and efficient system in place for recording your business’ financial transactions and keeping supporting financial documentation, such as W-2 forms, account statements, sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These kinds of documents are important to hold on to because they support the entries in your accounting records and on your tax return. For more detailed information refer to Publication 583: Starting a Business and Keeping Records.

2. Get a good accounting software program. With the cost of commercial accounting software suites, such as QuickBooks Pro, becoming more cost-effective (especially when you factor in the available customer support) and with the emergence of several, quality free open source options, such as NolaPro, GnuCash, and TurboCash, Microsoft Office Accounting Express, you practically have no excuse not to use some kind of accounting software package in your business.

3. File your taxes electronically. If your income was $58,000 or less, you may have the option of filing with the IRS’s Free File system which offers free e-filing and tax preparation via commercial software packages. The service is only available via the IRS website. Even if your income exceeded that amount, e-filing is definitely the way to go. You can either file yourself via the IRS’s e-filing portal, or there are several commercial software programs, such as TurboTax, that can do it for you (in addition to helping you maximize your tax deductions).

4. Hire help, ask questions, do your research. When it comes to taxes, ignorance is not bliss- especially if it leads to an audit. If you are just starting out it may be worthwhile to hire a qualified accountant to make sure that you are filing your taxes properly. If you do not choose this option, then make sure you seek out support and knowledge elsewhere. If your using a commercial software package then take full advantage of the customer support. You can also head over to the IRS Small Business Tax Center, and sift through the countless, informative articles and tools designed to help business owners correctly file their taxes.

5. Know your tax payment options. Business tax filers who are unable to cover the full amount of their tax liabilities should make sure to still complete their tax returns with a partial payment and/or file for an extension by April 15th.

Be aware that the IRS allows for installment payments. Those whose tax liabilities total $25,000 or less can use the Online Payment Agreement (OPA) or download a fill-in Request for Installment Agreement, Form 9465 that can be mailed to the address on the bill. Those who owe more than $25,000 may still qualify for an installment agreement, but a Collection Information Statement, Form 433F (PDF) may also need to be completed.

With installment payments filers can indicate how much they can afford to send the IRS each month and on what day they will want to make these monthly payments. The IRS will generally accept an installment agreement if the amount owed is less than $25,000 and the balance will be paid within five years. For filers who owe less than $10,000 and fulfill other requirements, acceptance is guaranteed.

Tax Season 2011: What Business Owners Need to Know

The 2011 tax season is in the air… In a last minute push through the door, the massive, bi-partisan legislation, the Tax Relief and Unemployment Insurance Reauthorization, and Job Creation Act of 2010, cleared Capital Hill. Now that the dust has settled a bit, there are several changes in the initiative that will effect those who own businesses. Here is a brief summary of these tax changes:


Employee payroll tax cut. The Social Security deduction from payroll will be 4.2 percent in 2011, down from 6.2 percent. The tax break will be available to both business owners and the self-employed.

Extension of business tax credits. Several business tax breaks were set to expire in 2009, such as the research credit and new-markets credit. They were renewed under the new legislation for 2010 and 2011.

Bonus depreciation. An extension was granted for 100 percent expensing of qualified business capital investments placed into service between Sept. 8, 2010 and Dec. 31, 2011.

Health insurance premium tax credits. Businesses employing fewer than 25 workers earning an average of less than $50,000 annually can qualify for a tax credit of up to 35 percent (based on a sliding scale) of their health insurance premium costs.

Work opportunity credit. This tax credit is for new hires that fall within one of the twelve targeted groups of people who have barriers to employment. The credit was supposed to expire in August 2011, but has now been extended through December for all the targeted groups except unemployed veterans and at-risk youth.

Sale of stock exemption. The full exemption of gain from sale of stock in a small business was extended through 2011.

Aside from the tax breaks mentioned above, two personal tax extensions may also affect the owners of smaller businesses.

Alternative minimum tax. Under the new legislation, the current AMT limits were extended for 2010 and 2011. It will exempt as many as 21 million households from having to pay the higher AMT rates.

Personal tax rates. The Bush-era tax cuts were extended for all income levels through 2012.

(Image Credit)

(Very) Last Minute Tax Tips For Unprofitable Businesses

Though there have been a few indications as of late that our economic situation is starting to lighten up (a bit), the truth is that for many small businesses, 2010 has been a hard year. When “hard” spells not profitable, knowing how to handle your taxes properly is essential. Many small business owners may not be aware that declaring a net loss has important tax consequences. Any business that declares a loss in more than two out of the past five years can be re-classified by the IRS as a hobby, and “hobbies,” unlike businesses are not eligible for tax breaks.


If you are just waking up to this fact, then there may still be some things you can do even within the last week of the year, depending on the extent of your loss:

  • See if you can capitalize on some holiday cheer by speaking with vendors and other creditors about deferring some of your business’ debts.
  • Meanwhile, you could try some last minute efforts to collect on any outstanding debts to your business- even partial payments may help ease the situation.
  • Try to unload any unused or unneeded inventory by selling it on eBay or Craigslist
  • Make sure to mail any checks for deductible purchases, business expenses and write-offs so that they are postmarked by midnight on Dec. 31.
  • Talk to an accountant or CPA to ensure that you are either writing off equipment purchases or depreciating them in the way most beneficial to your particular situation.

Over 20 Puzzling and Bizarre State Taxes

The first decade of the 21st century is coming to end; it’s a decade that will undoubtedly be remembered for the recession-weary economy and strained consumer budgets that have grabbed the headlines over the past few years. But average consumers have not been the only ones trying to scrape by. Even before the emerging economic difficulties had been officially labeled a “recession,” State governments have been busy trying to bring in extra revenue to cover their growing deficits. Some of their efforts have been puzzling at best, downright weird at the other end, and often problematic for smaller businesses everywhere in between.

Here is a collection of over 20 of the most bizarre state taxes are either currently in effect or were considered over the past few years:

If You Can’t Beat Them… Tax Them!


Recognizing that taxing people’s vices can be quite a lucrative arrangement, state governments have been expanding their so-called “sin taxes.” Here are a few notable tax arrangements:

Fountain Soda Drink Tax

If you ever go to Chicago, buy your soda in a can. If you buy the drink from a fountain, you will end up paying a 9% tax. Buy the same soda in a bottle or a can, and it’s only 3%.


Candy Tax Confusion 

In June of last year, legislation that made candy without flour taxable went into effect in Washington State. Shortly before the legislation was enacted, the Washington Department of Revenue posted a list online with some 3,000 items that would be subject to the tax. On the list were the likes of Three Musketeers, Starburst, and M&M’s, whereas candies without flour, including Twizzlers, MilkyWay and Nestle’s Crunch remained exempt. The law stirred up so much debate and confusion, however, that it was eventually repealed six months later.


Expensive Playing Cards

The price of a deck of playing cards will cost you 10 cents more in the state of Alabama thanks to a tax levied on the purchase of a deck that contains “no more than 54 cards.”


Illegal Drugs

Almost half of all US states enforce a tax on illegal drugs. That’s right, those who get their hands on some marijuana and other illegal substances are legally required to purchase and affix state-issued stamps on their stash. The total tax obligation is determined by the quantity of illegal drugs in possession. Though most of these taxes are “recouped” when the police make an arrest, people actually have the option of heading down to the State Department of Revenue and the paying the tax so they can receive stamps to affix to their illegal drugs! Not surprisingly, according to state records, takers are few.


The Less They Wear, The More Your Fare

Several states including Texas, Utah, Florida, and New York, have already levied or are considering levying taxes on the patrons of gentleman’s clubs, exotic dance parlors and all other places where nude or partially nude people work. The body of legislation, known as a “pole” tax, first appeared in Texas in 2007, and has since generated some $13 million in revenue for the Lone Star State that is designated to fund sexual assault programs. There’s one small problem, however, a judge recently ruled that the tax limits the free speech of the strippers, exotic dances, and other “sex workers”and the matter has been turned over to the high courts. Currently, the money is sitting in an account pending the outcome.

(Image Credit)

The Brothel Tax

In March of 2009, a Las Vegas Democrat proposed tacking a $5 surcharge on every “date” within any of the state’s legalized bordellos- a move that would result in an estimated $2 million dollars in annual revenue. With numbers like that there’s little wonder why state officials would be eying this industry. Moreover, the Nevada Brothel Owner’s Association is in support of the tax and has for years volunteered to pay some sort of state fee, much like the state’s gaming industry. In the end, however, state lawmakers got cold feet and the proposal was dropped a year later.

(Image Credit)


What Were They Thinking?…


Travel Taxes

Last year, numerous states began to target out of town tourists and business travelers as a source of new revenue with a series of hotel taxes, car rental fees, and other travel-related charges. Popular tourist attractions, in particular, have taken a beating. Outraged travelers and small business owners have been quick to point out that all these impositions are coming at a time when travel should be encouraged.


Pennsylvania Taxes Air

According to the Pennsylvania Department of Revenue, sales from compressed air vending machines and vacuuming vending machines, those used to blow up tires and clean out cars, are both subject to sales and use tax.

Pet Tax

Residents of Durham County in North Carolina have to pay more for their fury friends. According to the Durham County Animal Ordinance, local cat and dog owners with pets four months or older are subject to a $10 tax per animal. If the pets have not been “altered,”the tax jumps to $75.


Go to Court, Get Taxed

In the State of Tennessee, adults involved in criminal or civil court proceedings may also end up having to pay a $25 litigation tax.

Skip the Meal; Just Get Dessert

In California, when it comes to the sales tax on food, cold foods are usually exempt from taxes, unless they are purchased from a vending machine. Foods that are usually prepared hot are taxable, unless you’re buying a fresh-baked item or coffee, which are both tax-exempt.

The Home of Double Taxation

In celebration of America’s independence, businesses selling sparklers, fire crackers and other related items have the privilege of tacking on a special 4th of July sales tax in addition to the 6% sales tax already in effect.


Tax the Rich; Steal from the Poor

Promoted as an effort to spread the distribution of wealth by making the rich pay their “fair share,” the State of Kansas is trying to bring in about $350 million a year by exclusively taxing high-end services including, limousine and hot air balloon rides, golf green fees, private landscaping, and professional laundry services. Opponents of the bill, however, raised concerns that the additional taxes will stifle the small businesses that provide these high-end services.

Hot Air Balloon Tax

In Kansas, a debate recently ensued regarding how to classify hot air balloon rides in order to determine if the pricey pastime should be subject to the state’s amusement tax. In the end, hot air balloon flights were exempted- but only if you have somewhere to go, even it is no where in particular. According to the Kansas Department of Revenue, “Under the Anti-Head Tax Act, 29 U.S.C. Section 40116, states and local jurisdictions are prohibited from imposing fees and charges on airlines and other airport users. The department determined that un-tethered balloon rides where the balloon is actually piloted somewhere “some distance downwind from the launching point” would be considered carrying passengers in air commerce and would be pre-empted by the law. However, state sales tax can be imposed on tethered balloon rides.”

Things That Make You Go Hmmm…


The Cost of Carving

If you go to buy a pumpkin in Iowa, Pennsylvania, or New Jersey in order to carve a Halloween jack-o-lantern you’ll pay sales tax; buy the same pumpkin to eat, and you pay nothing. What if you buy a pumpkin to carve, but what to roast it’s seeds to eat afterward?


One Last Tax Break

In the State of Ohio, if you go to a salon and have someone put makeup on you, the transaction is taxable; at a funeral parlor, however, the deceased can have their faces done tax-free.

The 100 Years Income Tax Deduction

Many people spend some of their retirement years working a small job on the side, whether to earn a little money or pursue a hobby. But in the State of New Mexico, there is even more incentive to work in one’s golden years: anyone 100 years and older is exempt from paying income tax; centenarians can also not be claimed as a dependent.

Sales Tax “Holiday’s Questionable List

In order to encourage spending, several states hold a “tax holiday” on school supplies and clothing at some point towards the end of the summer. Inevitably, some unusual items find their way on to this list. The State of Florida, for example, exempts bowling shoes, fanny packs, leg warmers, shoulder pads, ski suits, hunting vests, and adult diapers, but curiously leaves out staplers and computer paper. In Texas, football and baseball jerseys are tax exempt, but not pads, helmets, pants and other sports gear. Belts are exempt from the tax, but belt buckles are not. Cowboy boots and hiking boots are also tax free, but rubber boots and climbing boots remain taxable. 

(Image Credit)


Don’t Drink and Drive… At Least Not in Colorado

The State of Colorado recently eliminated an exemption for non-essential food items and packaging provided with the purchase of food and beverages. Flash: cups are considered essential, lids are not.

Body Art Tax

If you live in the State of Arkansas the price of tattoos, body piercings and electrolysis is subject to a 6% sales tax alongside several other services, such as boat storage and pet grooming.


It’s an emergency? Let’s fly!

If you are in South Dakota and need an ambulance, you’ll pay tax for the service. However, if you should need air transportation to a far away medical center, your air ambulance flight is exempt.

The Bagel Tax

Some New York City residents were in an uproar recently when the city decided to enforce a tax law requiring bagel vendors to tack on an 8-cent fee for customers who ordered a sliced bagel. To make matters worse, adding toppings, such as cream cheese, increases the sales tax. So, say you buy a whole bagel, walk outside the shop, and start eating it on the street, it is exempt from tax. But, if you purchase that same bagel and eat it in the bagel shop (even without cream cheese), the vendor is required by law to add the sales tax to the purchase price. When the law was originally put into effect, many vendors chose to ignore it- that was until a city-wide audit struck 2,500 restaurants.

(Image Credit)