Illinois rebate triggers higher federal taxes, California
OKs break for recalled tires, and Oklahoma cuts auto fees
By Kay Bell • Bankrate.com

Because the federal income tax is the biggest and usually the first tax we see listed on our pay stubs, we naturally tend to focus on it.

But state government takes a bite out of our spending money, too. Bankrate.com will help you stay on top of what your localities are collecting -- income, sales, personal property or investment taxes, or often a combination of all.

Here's a look at some recent tax actions across the nation.

Illinois state tax rebate means higher federal taxes
SPRINGFIELD -- Illinois residents should soon be receiving checks from the state's $280 million tax rebate program. But because of the way the system was set up, these refunds are going to cost some state residents.

Money for the rebates comes from part of the state's settlement with tobacco companies. Illinois is the only state to use the tobacco payment for tax relief, according to the National Conference of State Legislatures.

Property owners will get a rebate equal to 5 percent of their last year's property tax bill, capped at $300. The property tax link, however, means that some check recipients will have to send part of their state tax refund to the federal tax collector.

Those facing a charge from Uncle Sam are Illinois property owners who itemized federal 1999 taxes and used the property tax as a deduction to cut the Internal Revenue Service bill. The rebate of that itemized amount now is basically a second deduction on the same money. And federal tax law doesn't allow that.

The Illinois revenue department estimates that a quarter of the 2.3 million rebate recipients didn't itemize federal taxes, so they won't owe any tax on the refund. The rest, however, will pay an average of 17 percent of their incomes to the federal government with 2000 tax filings, say state accountants, meaning about $36 million of the tobacco rebate money will be headed to Washington in April.

California provides a tax break on replacement tires
SACRAMENTO -- California's State Board of Equalization has ruled that motorists replacing Firestone tires don't have to pay sales tax or tire recycling fees on the new rubber.

In the wake of the tire recall, California drivers had questioned the state about fees related to replacement tires. Although the new tires are free, it was not clear if tax still was due on the replacement tires. Board Chairman Dean Andal also announced that the state's recycling fees usually charged to dispose of used tires will be waived in connection with the recall.

The fee abatement is effective regardless of who installs the tires or whether Firestone or another brand is used for replacement. This is because, according to Andal, the retailer replacing the tires is acquiring the tires for resale and distributing them as a warranty replacement as part of the original sales transaction.

However, Andal noted, if a motorist decides to upgrade tires rather than accept the free replacement models, both sales tax and the environmental fee will be charged on the amount that is above the replacement tires' value. In these cases, the recycling fee also can be charged.

California motorists with additional questions can call the Board toll-free at 1-800-400-7115.

Oklahoma cuts auto tag fees, modifies car sale excise taxes
OKLAHOMA CITY -- Oklahoma voters overwhelmingly approved in August a ballot initiative to cut the cost of vehicle registration fees. The new lower rates go into effect Oct.1.

The special election vote came after Gov. Frank Keating twice vetoed an Oklahoma assembly bill to lower the tax. Keating opposed related auto excise tax changes.

Under the new law, license tags will cost $85 for cars four years old or newer; $75 for cars five to eight years old; $55 for cars nine to 12 years old; $35 for cars 13 to 16 years old; and $15 for cars 17 years or older.

The rates apply to all noncommercial vehicles, including recreational vehicles, cars, pickups and motorcycles. The fees don't apply to farm vehicles or commercial vehicles.

The state's 3.25 percent excise tax on auto sales also was adjusted. The tax now will be charged on a vehicle's actual sales price. For new cars, that means the amount the customer pays rather than the manufacturer's suggested retail sticker price.

Used cars will be taxed at a flat $20 on the first $1,000 of the sales price and 3.25 percent on the remainder. The $1,000 threshold rises to $1,250 and $1,500 in later years. Used vehicles previously were taxed on their depreciated value.

-- Posted Sept. 14, 2000