Numerous localities (most recently Montgomery County, Maryland) have adopted taxes on checkout bags at retail establishments. Statewide taxes have not yet been adopted but are under consideration, and even Federal legislation has been introduced that would impose such a tax. The purpose of the taxes is not so much to raise revenue as to discourage the use of bags that may be regarded as harmful to the environment.
The taxes are typically imposed on plastic bags. Sometimes, they are imposed on paper bags as well, or as a supplement to a law banning plastic bags. A typical tax is five cents per bag. Often, the retailer is allowed to keep a portion of the charge (perhaps one cent) to cover the retailer’s costs of administering the program. Coverage among various types of retailers (e.g., grocery stores, department stores, restaurants, convenience stores) varies. Sometimes, only large retailers are subject to the tax. Usually, there are specific exemptions (e.g., for certain types of groceries).
Some localities are prevented from imposing the taxes because they lack authority to do so without permission from the state, which is not forthcoming. At present, a number of state legislatures have considered imposition of a tax (e.g., California, Maryland, and Virginia), but no statewide tax has been passed. The District of Columbia, however, has such a tax.
At the Federal level, Congressman Jim Moran (D-Va.) has introduced H.R. 1628, which would impose a five-cent tax on each carryout bag (plastic or paper) provided at checkout by a retailer. The tax would not apply to reusable bags or in certain other situations. There appears to be little likelihood of enactment in the present Congress, but the bill may serve as a basis for future legislation.
One issue raised by the competing local, state, and Federal initiatives is that they are not necessarily exclusive of one another and, if not properly drafted, could lead to imposition of multiple taxes on the sale of the same bag.
Retailers do not necessarily oppose legislation of this type. Checkout bags are a cost, and a tax that discourages their use results in a savings. Also, as noted, retailers are typically allowed to keep a portion of the tax to defray administrative costs. Some retailers turn a profit by selling branded reusable bags at checkout. In addition, some chain retailers would prefer a uniform state law to a situation in which various localities impose differing requirements. The legislation is, however, vigorously opposed by the plastic bag manufacturing industry, which generally prefers an approach that encourages recycling.
* * *
IRS Circular 230 Disclosure: To comply with certain U.S. Treasury regulations, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this communication, including attachments, was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on such taxpayer by the Internal Revenue Service. In addition, if any such tax advice is used or referred to by other parties in promoting, marketing or recommending any partnership or other entity, investment plan or arrangement, then (i) the advice should be construed as written in connection with the promotion or marketing by others of the transaction(s) or matter(s) addressed in this communication and (ii) the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. To the extent that a state taxing authority has adopted rules similar to the relevant provisions of Circular 230, use of any state tax advice contained herein is similarly limited.