Copyright © 2008, The McGraw-Hill Companies, Inc.
9.4 Other Taxes 407Excise taxes are often used in what the government considers “special situations.”
Luxury taxes are an example of this; an extra sales tax (above and beyond ordinary taxes)
may be levied on the sale of luxury items such as sports cars, yachts, furs, jewelry, and so
on. Interestingly, some taxes on home telephone service were originally considered luxury
taxes; when they were first instituted, having a telephone at home was considered a luxury.
These taxes remain in force even though having a home telephone is no longer considered
to be living large. Luxury taxes were once quite common (witness the space of luxury tax
on the Monopoly game board), but in recent years they have fallen out of favor.
In other cases, an excise tax may represent a lowering of the tax that would be otherwise
charged. For example, in May 2006 the New York State legislature responded to high gas
prices by eliminating the 4% sales tax on gasoline and replacing it with a new tax of 4% up
to a maximum of $0.08 per gallon.
Example 9.4.1 For the New York gasoline tax of 4% up to $0.08 per gallon, what
would the tax be on a gallon of gas if the price (before taxes) is (a) $1.79 per gallon,
(b) $2.00 per gallon, (c) $3.75 per gallon.(a) (4%)($1.79) $0.0716 7 cents per gallon. (We assume here that the tax is rounded
to the nearest cent.)(b) (4%)($2.00) $0.08 8 cents per gallon.(c) (4%)($3.75) $0.15 15 cents per gallon. However, the maximum applies, so the
actual tax is 8 cents per gallon.Tariffs and Duties
Items imported into the United States from overseas may be subject to duties, import
fees, or tariffs. Likewise, American goods exported to foreign countries may be subject to
tariffs, import fees, or duties imposed by those countries. While there may be some techni-
cal differences between these terms, for our purposes they are essentially the same thing:
a tax on bringing things into the country. (Both the process of managing this and the taxes
themselves are referred to by the term customs.)
In theory, these taxes are intended to protect companies producing products domestically
from unfair foreign price competition. Foreign governments are often accused of unfairly
subsidizing certain businesses. What really constitutes “unfair” competition is a matter of
debate, though, and disputes between countries over these sorts of taxes are frequent and
sometimes fairly nasty. One country may accuse another of “dumping” cheap products on the
world market to gain market share for its domestic companies, while another may be accused
of putting up “protectionist” barriers to keep out foreign companies and their products.
In an increasingly global marketplace, tariffs and duties can become a significant factor
for businesses. The import taxes charged by the United States on goods from a foreign
country will obviously have an effect on businesses that import goods from that country.
Likewise, the import taxes charged by other countries on goods imported to those countries
from the United States will have an impact on businesses looking to sell their products
abroad. International agreements such as the North American Free Trade Agreement
(NAFTA) between the United States, Canada, and Mexico can be of great significance
to business, as they limit or eliminate many of the taxes charged on imports among the
countries that are party to the agreement.
Customs and duties can be of significance for individuals when traveling. Items that
you buy overseas while traveling on business or on vacation may be subject to duties when
you bring them back to the United States. Each individual can bring goods back from a
trip abroad up to a certain dollar value (the exact amount depends on how long you were
there and may also depend on the country visited). Special exemptions may apply for
certain goods such as tobacco or alcohol products, and certain products may be restricted
regardless of their value (fruits and vegetables, for example, may be restricted because of
concerns over the spread of plant diseases). It is a very good idea to check on current cus-
toms regulations before traveling abroad to avoid being hit with unexpected steep duties.