Wikipedia

Cigarette taxes in the United States

In the United States, cigarettes are taxed at both the federal and state levels, in addition to any state and local sales taxes and local cigarette-specific taxes. Cigarette taxation has appeared throughout American history and is still a contested issue today.

Map showing excise tax per cigarette pack levied in each U.S. state/district/territory
  $0.000 to $1.999
  $2.000 to $3.999
  ≥$4.000

History

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Although cigarettes were not popular in the United States until the mid-19th century, the federal government still attempted to implement a tax on tobacco products such as snuff early on in its history. In 1794, secretary of the treasury Alexander Hamilton introduced the first ever federal excise tax on tobacco products. Hamilton's original proposal passed after major modifications, only to be repealed shortly thereafter with an insignificant effect on the federal budget.[1] Even though Hamilton's tax on tobacco failed, tobacco taxation continued to play an important role in American history.

On July 1, 1862, the United States Congress passed excise taxes on many items including tobacco. This occurred as a result of the Union's increasing debt during the American Civil War and the federal government's need for additional revenue. After the war, many of these excise taxes were repealed but the tax on tobacco remained. In fact, by 1868 the federal government's main source of income came from these lingering tobacco taxes.[2]

Despite the excise tax of the federal government, U.S. states did not ratify a tobacco excise tax until well into the 20th century. In 1921, Iowa became the first state to pass a tobacco excise tax at the state level in addition to the federal tax.[3] Other states quickly followed suit, and by 1950, 40 states and Washington D.C. enacted taxes on cigarette sales.[4]

By 1969, all states, the District of Columbia and the territories had implemented cigarette taxes. Several cities such as Chicago and New York City have also implemented their own citywide cigarette taxes. The combined federal, state, county, and local tax on a pack of 20 cigarettes in the city of Chicago, in Cook County, Illinois, is $7.42, the highest in the entire country. The lowest rate in the nation is in Missouri, at 17 cents, where the state's electorate voted to keep it that way in 2002, 2006, 2012, and 2016. The American Cancer Society opposed the increase in 2016 (Amendment 3). Their opposition is largely attributed to close ties with in-state institution Washington University in St. Louis. That university desired greater freedom to apply for grant money under the proposed law which largely prohibited such expenditures.[5][6]

On February 4, 2009, the Children's Health Insurance Program Reauthorization Act of 2009 was signed into law, which raised the federal tax rate for cigarettes on April 1, 2009 from $0.39 per pack to $1.01 per pack.[7] The increase was to help cover the cost of increased coverage under the State Children's Health Insurance Program (SCHIP).

One of the biggest criticisms of the bill came from Americans for Tax Reform which feared that it would lead to lower state tax revenue.[8] According to Nobel Prize-winning economist Gary Becker, who has studied the long-run price elasticity of cigarettes, the tax increase as a result of the Children's Health Insurance Program Reauthorization Act increases the price of cigarettes 13.3% which ultimately means a 10.6% decrease in unit sales. The Tax Foundation calculates these numbers to determine a predicted $1 billion loss for states. Another argument against this bill claims it to be regressive, holding that the tax increase unfairly targets the poor because according to the Centers for Disease Control and Prevention (CDC) more than half of all smokers are low income.[9] The CDC also notes that, "However, because low-income groups are more responsive to price increases, increasing the real price of cigarettes can reduce cigarette consumption among low income smokers by a greater percentage than among higher income smokers, and thereby diminish socioeconomic smoking disparities.[10] Further, lower income communities also suffer from tobacco-related illnesses at a disproportionately higher rate than their higher income counterparts.[11]

Effects

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One of the reasons for the support of increased cigarette taxes among public health officials is that many studies show that this leads to a decrease in smoking rates.[12] The relationship between smoking rates and cigarette taxes follows the property of elasticity; the greater the amount of the tax increase, the fewer cigarettes that are bought and consumed.[13] This is especially prevalent among teenagers. For every ten percent increase in the price of a pack of cigarettes, youth smoking rates overall drop about seven percent.[14] This rate is also true amongst minorities and low income population smokers.[15] Similar reductions in smoking rates following cigarette tax increases have been found among sexual minorities.[16] The rates of calls to quitting hotlines are directly related to cigarette tax hikes. When Wisconsin raised its state cigarette tax to $1.00 per pack, the hotline received a record of 20,000 calls in a two-month time period versus its typical 9,000 calls annually.[17]

An analysis of smoking and cigarette tax rates in 1955 through 1964, prior to the Surgeon General’s first report and general antismoking sentiment, shows the same relationship between tax increases and declining smoking rates that are prevalent today, suggesting that popular attitudes towards smoking are not a confounding factor.[13] Tobacco taxes also produce significant improvements in public health, and arguments about alleged adverse economic effects of such taxes tend to be unsupported.[18]

In 2012, RTI International conducted an analysis of data from the 2010-2011 New York and national Adult Tobacco Surveys to assess the financial burden cigarette taxes place on low-income families for the New York State Department of Health. According to ABC News, the study found that "higher cigarette taxes may be financially hurting low-income smokers rather than making them more likely to quit." Among the 13,000 surveyed in New York State, lower income smokers (those in households making under $30,000) spent 23.6 percent of their income on cigarettes, compared to two percent by higher income New York residents and an average of 14 percent among lower income smokers nationally.[19][20]

Smuggling

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States with high taxes often have cigarettes smuggled in from lower taxed states and a black market is created. The Tax Foundation estimated that New York State lost an estimated $1.63 billion to black market sales.[21]

Tobacco companies themselves have been involved in tobacco smuggling. In 2010 in Canada, R. J. Reynolds Tobacco Company agreed to pay a total of $325 million to settle claims related to the smuggling. A Reynolds subsidiary, Northern Brands International Inc., was fined $75 million after pleading guilty under the Canadian Criminal Code to one count of conspiracy for helping others sell contraband cigarettes. While the smuggling operation was ongoing in the 1990s, tobacco companies were lobbying federal and provincial governments to lower cigarette taxes, pointing to the prevalence of contraband product as all the more reason to reduce taxes.[22][23]

From foreign experience, scholars also suggest that while tax on cigarettes can allow total cigarette consumption to be effectively controlled, they can also increase smuggling and cause a loss of income for the government. As smuggled cigarettes are a substitute of taxed cigarettes, the price of the former would also increase for higher tax rates. Consumption of cigarettes in total then drop as consumers must pay more regardless of whether they buy smuggled or taxed products.[24]

Taxes as a proportion of cigarette prices

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While the price of cigarettes has continuously increased since 1965, the percentage of that price going towards taxes is now half of what it was then.[15] As of 2011, Phillip Morris lists total government revenue, including federal, state, local, and sales taxes, as 55% of the estimated retail price of a pack of cigarettes in the United States.[25]

According to data from the World Health Organization on cigarette taxes around the world, the U.S. is ranked 36th out of the 50 most populous countries in terms of the percent of cigarette pack costs from taxes. Their data estimates that taxes make up 42.5% of the cost of a pack of cigarettes in the U.S., compared to 82.2% in the United Kingdom, which has the highest cigarette taxes.[26]

Cigarette tax rates by jurisdiction

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The following table lists U.S. state and territory tax rates (as of September 1, 2023):[27][28][29][30]

Excise tax per pack (in USD) State or territory
0.675 Alabama
2.00 Alaska
2.00 Arizona
1.15 Arkansas
2.87 California
1.94 Colorado
4.35 Connecticut
2.10 Delaware
1.339 Florida
0.37 Georgia
3.20 Hawaii
0.57 Idaho
2.98 Illinois
0.995 Indiana
1.36 Iowa
1.29 Kansas
1.10[31] Kentucky
1.08[32] Louisiana
2.00 Maine
3.75 Maryland
3.51 Massachusetts
2.00 Michigan
3.46 Minnesota
0.68 Mississippi
0.17 Missouri
1.70 Montana
0.64 Nebraska
1.80 Nevada
1.78 New Hampshire
2.70 New Jersey
2.00 New Mexico
5.35[33] New York
0.45 North Carolina
0.44 North Dakota
1.60 Ohio
2.03 Oklahoma
3.33 Oregon
2.60[34] Pennsylvania
4.25 Rhode Island
0.57 South Carolina
1.53 South Dakota
0.62 Tennessee
1.41 Texas
1.70 Utah
3.08 Vermont
0.60 Virginia
3.025 Washington
1.20[35] West Virginia
2.52 Wisconsin
0.60 Wyoming
4.50[36] District of Columbia
3.75 Northern Mariana Islands
5.10 Puerto Rico
4.00 Guam
2.50 American Samoa
1.10 [2] U.S. Virgin Islands

The above table does not include the federal excise tax on cigarettes of $1.01 per pack, cigarette taxes levied by individual municipalities (such as New York City, Chicago, and Anchorage), or sales taxes levied in addition to the retail price and excise taxes.

Non-cigarette tobacco taxes

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Taxes on smokeless (chewing) tobacco, as well as (and often concurrent with) snuff, cigars and pipe tobacco, are also common in the United States. Forty-nine states and the District of Columbia have such a non-cigarette tax(es), Pennsylvania being the sole exception, with no cigar tax at all (though it considers small cigars to be cigarettes for taxation purposes) and the last to impose taxes for smokeless and pipe tobaccos in 2016.[37] Of the 49 states that do impose in this category, Florida does not tax cigars, though all other tobacco products are taxed. The federal government charges different non-cigarette excise taxes, according to the following 6 categories: snuff, chewing tobacco, pipe tobacco, roll-your-own, large cigars, and small cigars.[38] Cigarette papers and tubes are also taxed. As of June 2019, ten states and Washington, D.C. also had excise taxes on e-cigarettes.[39][40][failed verification]

Electronic cigarette taxes

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As of December 31, 2021, 30 states and the District of Columbia have passed legislation that requires a tax on electronic cigarettes. Twelve states tax e-cigarettes per milliliter of liquid or consumable material. Fifteen states, the District of Columbia, and the U.S. Virgin Islands tax e-cigarettes on a percentage of a specified cost. Four states tax closed e-cigarette systems (prefilled cartridges) per milliliter of liquid and open e-cigarette systems (refillable cartridges) on a percentage of a specified cost.[41]

Key

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VALM: Manufacturer Price/Wholesale Purchase Price

VALW: Wholesale Sales Price

VALWD: Wholesale Sales Price with Discount

VAL: Selling Price

State Tax Rates
State Vape Tax/ E-Cig Tax Is non-nicotine e-liquid taxable?
Alabama No Tax No
Alaska No Tax No
Arizona No Tax No
Arkansas No Tax No
California 56.32% VALM, 12.5% VAL No
Colorado 55% VALM No
Connecticut 10% VALW Open, $0.40/ mL closed No
Delaware $0.05 / mL No
District of Columbia 80% VALW No
Florida No Tax No
Georgia $0.05/mL closed replaceable cartridge, 7% VALW open & VALW single-use closed Yes
Hawaii No Tax No
Idaho No Tax No
Illinois 15% VALM Yes
Indiana 15% VALW closed cartridge, 15% VAL open Yes
Iowa No Tax No
Kansas $0.05/ mL Yes
Kentucky 15% VALWD open, $1.50/cartridge closed Yes
Louisiana $0.15/ mL No
Maine 43% VALM Yes
Maryland 12% of retail, 60% of retail on 5mL or less Yes
Massachusetts 75% VALM Yes
Michigan No Tax No
Minnesota 95% VALM No
Mississippi No Tax No
Missouri No Tax No
Montana No Tax No
Nebraska No Tax No
Nevada 30% VALM Yes
New Hampshire 8% VALM open, $0.30/mL closed No
New Jersey 10% of retail open, $0.10/mL closed Yes/No respectively
New Mexico 12.5% of VALM open, $0.50/cartridges 5mL or less closed Yes
New York 20% VAL Yes
North Carolina $0.05 / mL No
North Dakota No Tax No
Ohio $0.10 / mL No
Oklahoma No Tax No
Oregon 65% VALM Yes
Pennsylvania 40% VALW Yes
Rhode Island No Tax No
South Carolina No Tax No
South Dakota No Tax No
Tennessee No Tax No
Texas No Tax No
Utah 56% VALM Yes
Vermont 92% VALW Yes
Virginia $0.066 / mL No
Washington $0.09/mL open > 5mL, $0.27/mL open <= 5mL, $0.27/mL closed Yes
West Virginia $0.075 / mL Yes
Wisconsin $0.05 / mL Yes
Wyoming 15% VALM No

The above table does not include electronic cigarette taxes levied by county and municipal-level jurisdictions (such as those placed by Cook County, Illinois, and the city of Chicago), or sales taxes levied in addition to the retail price and excise taxes.

See also

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References

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  1. ^ "History of Tobacco Regulation - Regulation for Revenue". Druglibrary.org. Retrieved 2015-07-02.
  2. ^ "Fact Sheets: Taxes: History of the U.S. Tax System". United States Department of the Treasury. Archived from the original on 10 November 2010.
  3. ^ "Iowa". Retrieved 12 June 2015.
  4. ^ [1] Archived April 17, 2010, at the Wayback Machine
  5. ^ "A burning issue," St. Louis Post-Dispatch, November 12, 2006
  6. ^ "Missouri keeps tobacco tax as the lowest in the nation : News". Stltoday.com. 2012-11-06. Retrieved 2015-07-02.
  7. ^ Section 701(b) reads: Section 5701(b) of such Code [Internal Revenue Code of 1986] is amended — (1) by striking ‘‘$19.50 per thousand ($17 per thousand on cigarettes removed during 2000 or 2001)’’ in paragraph (1) and inserting ‘‘$50.33 per thousand’’, and (2) by striking ‘‘$40.95 per thousand ($35.70 per thousand on cigarettes removed during 2000 or 2001)’’ in paragraph (2) and inserting ‘‘$105.69 per thousand’’. "United States Public Law No: 111-3 (123 United States Statutes at Large 106)" (PDF). 4 February 2009. Archived (PDF) from the original on 6 May 2009.
  8. ^ ""We Told You So:" Increased Tobacco Tax Rate Reduces Revenues in Arkansas - Americans for Tax Reform". Americans for Tax Reforms. 8 December 2009. Retrieved 12 June 2015.
  9. ^ Brad Schiller (1 April 2009). "Brad Schiller Says Barack Obama's Tobacco Tax Will Hurt the Poor - WSJ". WSJ. Retrieved 12 June 2015.
  10. ^ "Federal and State Cigarette Excise Taxes --- United States, 1995--2009". Retrieved 12 June 2015.
  11. ^ "Campaign for Tobacco-Free Kids". Retrieved 12 June 2015.
  12. ^ Chaloupka, F. J.; Cummings, K. M.; Morley, C.; Horan, J. (2002). "Tax, price and cigarette smoking: evidence from the tobacco documents and implications for tobacco company marketing strategies". Tobacco Control. 11 (Suppl 1): i62–i72. doi:10.1136/tc.11.suppl_1.i62. PMC 1766067. PMID 11893816. Retrieved 12 June 2015.
  13. ^ a b D E Peterson; S L Zeger; P L Remington; Anderson (January 1992). "The effect of state cigarette tax increases on cigarette sales, 1955 to 1988". American Journal of Public Health. 82 (1): 94–96. doi:10.2105/AJPH.82.1.94. PMC 1694421. PMID 1536343.
  14. ^ "President Obama Signs Children's Health Insurance And Federal Tobacco Tax Increase Into Law". Medicalnewstoday.com. Archived from the original on 2009-03-12. Retrieved 2015-07-02.
  15. ^ a b "WHO: The Tobacco Atlas". Who.int. Archived from the original on 2011-12-03. Retrieved 2015-07-02.
  16. ^ Christopher S. Carpenter; Dario Sansone (2021). "Cigarette Taxes and Smoking Among Sexual Minority Adults". Journal of Health Economics. 79: 102492. doi:10.1016/j.jhealeco.2021.102492. hdl:10871/126233. PMID 34271472.
  17. ^ "Raising Cigarette Taxes Reduces Smoking, Especially Among Kids" (PDF). Tobaccofreekids.org. Retrieved 2015-07-02.
  18. ^ Chaloupka, F. J.; Yurekli, A.; Fong, G. T. (16 February 2012). "Tobacco taxes as a tobacco control strategy". Tobacco Control. 21 (2): 172–180. doi:10.1136/tobaccocontrol-2011-050417. PMID 22345242.
  19. ^ Salahi, Lara (September 20, 2012). "Cigarette Tax Burdens Low-Income, Doesn't Deter Smoking". ABC News. Retrieved July 19, 2013.
  20. ^ Farrelly, Matthew C.; Nonnemaker, James M.; Watson, Kimberly A. (2012). "The Consequences of High Cigarette Excise Taxes for Low-Income Smokers". PLOS ONE. 7 (9): e43838. Bibcode:2012PLoSO...743838F. doi:10.1371/journal.pone.0043838. PMC 3440380. PMID 22984447.
  21. ^ Bresiger, Gregory (2017-11-11). "NYC is the cigarette smuggling capital of the US: study". New York Post. Retrieved 2017-11-13.
  22. ^ "Tobacco firms to pay $550M over smuggling". Canadian Broadcast Corporation. 2010-04-13. Retrieved 2018-10-30.
  23. ^ "Canada's cigarette smuggling corridor". International Consortium of Investigative Journalists. 2012-05-14. Retrieved 2018-10-30.
  24. ^ Tat Chee Tsui (17 June 2015). "Does Smuggling Negate the Impact of a Tobacco Tax Increase?". Tobacco Control. 25 (3): 361–362. doi:10.1136/tobaccocontrol-2015-052310. PMID 26085122. S2CID 32615470. SSRN 2629815. Retrieved 2020-10-14.
  25. ^ "Cigarette Excise Taxes – A National View". Philip Morris USA. Archived from the original on December 5, 2013. Retrieved February 17, 2015.
  26. ^ Kopf, Dan (20 January 2016). "How Cigarettes Tax the Poor". Priceonomics. Retrieved 27 January 2016.
  27. ^ "State Cigarette Excise Tax Rates & Rankings" (PDF). Tobaccofreekids.org. Retrieved 2015-07-02.
  28. ^ "Georgia's budget mess could hurt local health care". The Daily Citizen. 13 March 2010. Retrieved 12 June 2015.
  29. ^ Cook, Colin (25 January 2018). "How High Are Cigarette Tax Rates in Your State?". Tax Foundation. Retrieved 3 July 2018.
  30. ^ Mincer, Jilian (November 9, 2016). "California approves tax increase on cigarettes". Reuters - Health News. Retrieved 2018-12-02.
  31. ^ Loftus, Tom; Yetter, Deborah (April 2, 2018). "Tax reform bill introduced and approved by Kentucky legislature in mere hours". Courier Journal. Retrieved 3 July 2018.
  32. ^ "Louisiana Senate passes cigarette tax increase, goes into effect April 1". Associated Press. 5 March 2016.
  33. ^ https://www.tax.ny.gov/pdf/notices/n23-2.pdf [bare URL PDF] New York State Excise Tax on Cigarettes to Increase on September 1, 2023, (July 31, 2023)
  34. ^ "Which Tobacco Product Is Exempt from Pennsylvania's New Tax?".
  35. ^ Robinson, Kathryn (July 2016). "Tobacco tax hike goes into effect in W.Va".
  36. ^ Giambrone, Andrew (May 16, 2018). "D.C. Cigarette Taxes to be Among Nation's Highest Under New Budget". Washington City Paper. Retrieved 3 July 2018.
  37. ^ "Pa. cigarette tax will be nation's 10th highest". 19 July 2016.
  38. ^ "State Excise Tax Rates For Non-Cigarette Tobacco Products" (PDF). Tobaccofreekids.org. Retrieved 2015-07-02.
  39. ^ "A 92% tax on e-cigarettes: It's happening Monday in Vermont". USA TODAY. Retrieved 2019-06-27.
  40. ^ Crowley, Ryan A. (2015). "Electronic Nicotine Delivery Systems: Executive Summary of a Policy Position Paper From the American College of Physicians". Annals of Internal Medicine. 162 (8): 583–4. doi:10.7326/M14-2481. ISSN 0003-4819. PMID 25894027.
  41. ^ "STATE System E-Cigarette Fact Sheet". www.cdc.gov. 2022-02-16. Retrieved 2022-04-20.
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