Wolters Kluwer Tax & Accounting:

What: Many historians point to the British Tea Act of 1773 and the subsequent Boston Tea Party on December 16^th of that same year as finally uniting the colonies to declare independence on July 4, 1776. But the British Tea Act of 1773 did not actually change the tax on tea. The tea tax had already been imposed by British Parliament in 1767. How were we taxed on tea then, and how are we taxed on tea now?

Then: The taxation of tea was likely a confusing issue at the time of the Revolution.

• The tea tax imposed in 1767 actually lowered the tax on tea and led to increased tea consumption in the colonies, with some authorities mentioning a tax of 3 pence per pound, said to be even less tax than people in Britain were paying on tea
• It is difficult to understand the historical record regarding if “pound” refers to a pound of tea, or the British Pound currency, but some have estimated a tax rate, at the time, of 12% on tea
• The real issue with the Tax Act of 1773 appeared to be that it gave the British East India Company a “monopoly” on selling tea to the colonies, which cut-out all of the colonial merchants buying and selling tea from England. In essence, it permitted the British East India Company to undercut pricing
• This “monopoly” allowed the tea to be less costly, and the tea tax was actually lower; however, this was all done in Britain without any colonial input. As stated in the Declaration of Independence, among the grievances against King George II and the justifications for independence was “For imposing Taxes on us without our Consent,” or, the more famous “Taxation Without Representation”

Now: The taxation of tea to this day is confusing, with both U.S. federal and state governments involved.

• The U.S. federal government imposes tariffs on imported tea, ranging from 6.4% duty on flavored green tea to the White House administration currently saying it might impose up to a 25% tariff on imported tea from China
• States that have sales tax (all but 5 states), may or may not impose taxes on tea. If the tea is subject to sales tax, depending on the state, the rate of tax may range from 2.9% to 7.5%, plus certain localities also impose additional taxes on items, including tea
• Taxation in a particular state depends upon whether the tea is sold for home consumption or consumption ‘on premises,’ whether it is sweetened and taxed like soda, whether it is sold as a powder or a liquid, and whether it has a supplement label or not
• While most of us now elect representatives in Congress who vote on these taxes, the District of Columbia still complains about ‘Taxation Without Representation’ since residents of the District cannot elect a voting member to Congress

Who: Federal tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, is available to discuss the current and historic federal tax issues associated with the taxation of tea. State tax expert Carol Kokinis-Graves, J.D., Senior State Tax Analyst at Wolters Kluwer Tax & Accounting, is also available to discuss the state tax issues associated with the taxation of tea.

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