I recently posted that Florida was attempting to increase its tax on cigarettes
for 2016. Often times when states need revenue, regressive type taxes
like cigarettes and tobacco are low hanging fruit. Politicians generally
spin the taxes to assist in public health and prevent youths from purchasing
costly tobacco. Other states are also seizing the opportunity to collect
more tax while also serving the public good of reducing the use of cigarettes
Similar to Florida, California also announced a tax hike on cigarettes.
The proposal would raise cigarette tax in California from its current
rank of 35th to the top 10 by moving the tax from $0.87 per pack to $2.87. The $2 increase
would generate just over $1 billion in revenue for the state by 2018.
As usual, the state is quick to point out the good by pointing out that
82% of the revenue would fund struggling health care programs. In a chance
to “do what’s right for California,” proponents have
advocated this as a chance to reduce the number 1 preventable death in
the state. Although it is unclear whether vapor products have similar
pose similar health risks, California is also seeking to impose a similar
tax on vapor products with nicotine.
Similarly, Kansas has sin tax increases proposed for 2016. Nearly identical
California, the state would like to get $2.29 per pack, up from $0.79.
While they are at it, they are also seeking a 50% increase in alcoholic
beverage taxes from 8% to 12%. It appears Kansas’ motivation is
largely a financial one as the state is projecting a $710 million shortfall,
so it would make sense to up the sin taxes by about $400 million. After
all, it is generally easier for a state to impose extra taxes on alcohol
and tobacco products than to spend responsibly.
Predictably, both proposals have been met with some opposition. When California
came up with a tax bump in 2012, the tobacco community responded with
about $47 million to shut down the legislation. Namely, about $27 million
came from Altria (Phillip Morris) and another $11 million from R.J. Reynolds.
Altria points to the regressive nature of tobacco taxes as it has a more
burdensome effect on lower income smokers than on rich ones. Increasing
tobacco taxes also creates a black market for tobacco, hurts legitimate
businesses, and does not help state budgets.
Tobacco distributors should pay attention to the movement across the country
to increase tobacco and alcohol taxes. An increase in tax can create a
significant shift in your or your client’s business model. Of course,
as taxes increase there may be an increased need to make sure you are
paying the correct tax. Alternatively, if you have already paid tax on
the wrong base, then it makes sense to investigate a refund. As laws continue
to change and evolve, the likelihood of loopholes opening also increases.
If you think you are paying too many taxes, we would be happy to look
into it for you and get your money back.
About the author: Mr. Donnini is the president and founder of Tobacco Tax
Refunds, Inc. He is also multi-state sales and use tax attorney and an
associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort
Lauderdale, Florida. Mr. Donnini has extensive knowledge handling wholesale
tax controversy and refunds.
In his law practice Mr. Donnini's primary practice is multi-state sales
and use tax as well as state corporate income tax controversy. Mr. Donnini
also practices in the areas of federal tax controversy, federal estate
planning, Florida probate, and all other state taxes including communication
service tax, cigarette & tobacco tax, motor fuel tax, and Native American
taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini
is licensed to practice law in Florida. If you have any questions please
do not hesitate to contact him via email [email protected]
or phone at 954-639-4496.