A piggyback tax -- as the name implies -- is a tax that gets imposed on top of another tax. The most common example of a piggyback tax is a tax imposed by local government, which corresponds to a tax at the state level. State government collects both taxes, divides up proceeds and sends local government its cut.
Piggyback Sales Tax
Sales tax is a perfect example of a piggyback tax. In Florida, for example, the state government sets a statewide sales tax -- at the time of publication, it's at 6 percent. Counties around the state can hitch a ride on this, setting a higher sales tax within their borders. As of 2013, the local surtax runs from .5 to 1.5 cents on the dollar around the state, while a few counties opt not to impose extra tax at all.
As far as retailers and shoppers are concerned, the only difference a piggyback sales tax makes is to the price. If you shop somewhere affected by piggybacking, the state sales tax and piggybacked local sales tax will typically be calculated together, rather than as separate payments. The store pays the entire amount of tax directly to the state. It's the state's job to distribute the piggybacked portion that belongs to individual counties.
Piggyback Income Tax
Counties and cities may also impose income tax, on top of state income taxes that residents already pay. For example, as of 2013, Maryland counties and the city of Baltimore collect a local income tax. Taxes range between 1.25 and 3.2 percent, and these taxes apply to the same taxable income residents report on state income tax forms. You don't pay the county -- instead you calculate the tax on your state income tax form and include it in your payment. As with sales tax, the Maryland government distributes the piggyback cash around the state.
The state gives a tax credit for Marylanders who pay income tax to other states where they earned money, but local governments do not. In 2006, a couple filed suit, saying the lack of a credit amounted to double-tax on their income. In 2013, the state's highest court agreed. State officials say this could cost local governments between $40 million and $50 million in revenue a year.
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