On New Year’s Day, many of us will reflect on the wreckage of an evening, a season, or even a whole year, of indulgence and vow to a newfound personal restraint. In fact, as if to justify continuing their excesses right up to the ball dropping, most New Year’s revelers will already have their resolution to make good planned out in advance. In view of lawmakers’ efforts to use the tax law to incentivize such “better” behavior, one might expect New Year’s resolutions to be tax-preferred or at least tax-neutral. As the following analysis of common resolutions reveals, this is rarely the case.
1. Get Fit.
Far and away the most popular New Year’s resolution is a renewed commitment to physical fitness. Those who pursue this resolution by joining a gym will find that it comes with a sales tax cost in many states. This will be the case, for instance in Washington. As BBNA’s Ryan Voorhees discussed earlier this year, the state has expanded its definition of taxable “physical fitness services”, effective January 1.
2. Eat Healthier.
Taxes on soft drinks were popular again this year. As reported by Laura Lieberman, 2015 legislation cited health concerns in favor of soft drink excise taxes in Illinois, Vermont, and Connecticut. Several states already impose such taxes. Additionally, many states tax soft drinks under their sales and use tax while exempting other foods. In July, Vermont joined the states levying sales tax on soft drinks. If your New Year’s resolution is to eat healthier in 2016, your state’s tax law might align with this goal.
3. Watch Less TV.
Another popular resolution that people make (and break) year-after-year is to watch less TV. Rather than leaning on willpower alone, some people will go so far as to cancel their TV service. In some states, the tax implications of doing so will depend on whether the canceled service is satellite service or cable service. A handful of states impose sales tax on satellite TV service while exempting cable TV service. As I discussed in an earlier blog post, satellite TV providers have mostly been unsuccessful in challenging this differential treatment.
4. Read More.
The tax implications of this resolution may depend on how it is fulfilled. Those who choose to fulfill this resolution by purchasing e-books will find that in many states, unlike paperbacks and hardcovers, these are non-taxable. Of course, the library is always free.
5. Buy Local.
Buying local may not just be good for your local economy, but for state revenues as well. This will particularly be the case where purchases from local brick-and-mortar retailers replace purchases from online retailers that do not collect tax. Unless and until Congress passes the Marketplace Fairness Act or similar legislation, this inconsistency will persist.
With the above discussion in mind, before finalizing your 2016 resolution, you may want to review its tax costs. In addition, it may be worth contemplating the observation of Stephen Shapiro, author of Goal-free Living, that people who succeed in their resolutions are no happier than those who fail. Moreover, both are less happy than those who do not set resolutions in the first place. So, tax considerations aside, perhaps the best resolution is to not make one at all.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What do you plan to give up in 2016?
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