The Big Picture
An overview of federal, state and local tobacco issues.
Regarding federal tobacco taxation, President Obama is proposing to expand preschool education to all low-income 4-year-olds across the country at a cost of $75 billion over the next 10 years and to pay for the expansion by raising the federal cigarette tax from $1.01 per pack to $1.95 per pack and also increasing the federal tobacco tax rate on all other tobacco products by 93%.
At the State Level
Although 36 state legislatures considered legislation this year to increase or decrease cigarette and tobacco product tax rates, eight states have actually enacted an increase or decrease in cigarette and/or tobacco product tax rates.
Arkansas enacted a cap on premium cigars of 50 per cigar that takes effect Oct. 1, 2013.
Colorado made permanent the state sales tax of 2.9% on the sale of cigarettes. Effective Aug. 1, Kentucky reduced the chewing-tobacco tax rate to 19 cents per each 1.5-ounce single unit.
In Massachusetts, the cigarette tax rate was increased by $1 per pack to a new rate of $3.51, cigars and RYO tax rates were raised to 40%, and the tax on moist snuff and chewing tobacco rose to 210%.
As of July 1, the Minnesota state cigarette tax was increased by $1.60 per pack, the OTP tax was also increased to 95%, and the tax on non-settlement cigarettes was raised to 50 cents per pack. In addition, a minimum tax on moist snuff of $2.83 per container or 95%, whichever is greater, will go into effect Jan. 1, 2014.
In New Hampshire, the state cigarette tax rate automatically increased by 10 cents per pack to $1.78 on Aug. 1, 2013, and the OTP tax increased to 65.03% due to lower cigarette and tobacco tax revenue for the two-year period from July 1, 2011, through June 30, 2013, than the two-year period from July 1, 2009, through June 30, 2011.
The tax on little cigars in Ohio will increase from 17% to 37% of the wholesale price effective Oct. 1, 2013. In Texas, a new law imposes a tax of 2.75 cents per cigarette on both non-settling manufacturer cigarette brands and non-settling manufacturer cigarette tobacco, effective Sept. 1, 2013.
The states in which proposed increases or decreases in cigarette and/or tobacco tax rates were not enacted this year include Alabama, California, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maine, Maryland, Mississippi, Missouri, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, West Virginia and Wyoming. Three states with year-round legislatures that have pending tax bills include Michigan, New Jersey and New York.
States also considered assessing taxes on electronic cigarettes. Minnesota is the only state that taxes e-cigarettes. The Minnesota tax rate on e-cigarettes is 95% of the wholesale cost. A bill in Hawaii that would have applied the state’s cigarette tax rate to e-cigarettes did not pass this year. Also in Massachusetts, a bill is still pending that would tax e-cigarettes at a rate of 90% of the wholesale cost. Utah was another state that had a similar bill to tax e-cigarettes at 86% of the wholesale cost.
Bills were also introduced in Oklahoma and South Carolina that would establish a different method of taxation for e-cigarettes. Rather than classifying e-cigarettes as a tobacco product, these two bills define e-cigarettes as a vapor product and apply a tax of 5 cents per nicotine cartridge, with a limit on the tax per cartridge being no greater than one-tenth of the tax on traditional cigarettes.