Illinois Cigarette Tax Falls Short

Predicted to generate $130 million less than promised revenue

Published in Tobacco E-News

By  Melissa Vonder Haar, Tobacco Editor

SPRINGFIELD, Ill. -- Last June, Illinois Governor Pat Quinn signed a $1-per-pack cigarette tax increase into law, with the promise of $350 million in additional revenue to help rescue the state’s struggling Medicaid program, with additional dollars allocated for Illinois’ School Infrastructure Fund and Long Term Care Provider Fund. However as the fiscal year came to an end on June 30, it appeared as though the increase would fall a significant $130 million short of the original estimate, generating only $212 million.

A report released in May by the Commission on Government Forecasting and Accountability (COGFA) credits the lack of revenue with a decline in sales that typically accompanies such a drastic tax increase. Jim Muschinske, COGFA’s revenue manager, also believes smokers may have stocked up on lower taxed cigarettes before the tax increase was enacted.

“This tax was discussed and talked about quite some time before it actually went into effect,” Muschinske told The State Journal-Register. “So individuals went out and purchased in bulk a bunch of cigarettes, so more of those packs were sold under the lowered tax rate.”

With the tax increase being discussed during the latter months of fiscal year 2012, the Illinois Department of Revenue reported that cigarette tax receipts came in at $577.4 million – $53.4 million over the projected revenue.  Muschinske and others believe such numbers support the “hoarding” claim.

However, the loss of revenue could also suggest that Illinois may be falling victim to the cigarette smuggling that already plagues higher-taxed states like New York. The state’s $1.98-per-pack tax is well above the national average of $1.46. Making matters worse is the fact that four out of five of the states bordering Illinois charge lower excise taxes – most notably Indiana, whose tax rate is half that of Illinois’, and Missouri, whose 17 cents excise tax is the lowest in the country.

“Anyone can border-hop to go to someplace that has a lower tax rate,” Muschinske said.

Although the COGFA report showed that Medicaid would get its promised funding, it also predicted that the School Infrastructure Fund would not receive all of the projected $60 million in fiscal year 2013 or 2014 and that The Long Term Care Provider Fund will not receive any additional funds from the cigarette tax during that time.