When In Doubt, Up The Tobacco Taxes

In an effort to raise revenue, Florida recently proposed a hike in state tobacco taxes. Specifically organizations like the American Cancer Society, American Heart Association, American Lung Association, and Florida & Campaign for Tobacco Free Kids are leading the charge for a higher cigarette tax in Florida. The proposed tax would increase cigarette taxes by $1/pack.

Of course, the law has not been pushed as a revenue raiser, but rather will help reduce smoking by young people. In fact, when the law was proposed by Rep. Jim Waldman, D-Coconut Creek, he stated “This is a health care bill, plain and simple, to stop the youth from smoking.” In order to appease the anti-tax Republicans, the tax hike would be offset by reduced motorist registration fees and driver’s license fees.

Experts estimate that the new law would generate $400 - $900 million of tax revenue. Currently, Florida ranks 29th in the nation with a tax of about $1.34/pack. This is slightly lower than the national average of $1.60/pack. A listing of all that cigarette tax rates can be found here. The proposed rate of $2.34/pack still does not even place Florida in the top 10. Although analyzing state tax rates can be deceptive because localities oven double or triple the state tax, the highest and lowest cigarette tax rates by state are as follows:

  1. New York $4.35
  2. Rhode Island $3.75
  3. Connecticut $3.65
  4. Massachusetts $3.51
  5. Hawaii $3.20
  6. Vermont $3.08
  7. Washington $3.03
  8. Minnesota $2.90
  9. New Jersey $2.70
  10. Wisconsin $2.52

The lowest states are as follows. As expected many of lower states are states that you would expect to produce much of the country’s tobacco:

  1. Missouri $0.17
  2. Virginia $0.30
  3. Georgia $0.37
  4. North Dakota $0.44
  5. North Carolina $0.45
  6. West Virginia $0.55
  7. South Carolina $0.57
  8. Idaho $0.57
  9. Wyoming $0.60
  10. Kentucky $0.60

On the flip side, increased tobacco tax rates will also have some negative implications. In high tax jurisdictions, retailers often go to greater lengths to avoid paying taxes. For example, New York and Illinois are notorious for the smuggling of untaxed cigarettes. In 2015, experts estimate that 58% of cigarettes consumed in New York are smuggled and untaxed. Taxes in places like Cook County, Illinois are over $6.00/pack. Further, such states have not seen much increase in extra tax revenue. Other opponents, such a Phillip Morris, have stated that the increase tax unfairly burdens adult smokers and they will oppose the law change.

The Florida legislative session beings at the top of the year and it will be interesting to see whether the legislation moves forward. While it is nice in theory to dissuade younger people from smoking, tax increases always come with a down side. When governments need taxes, who’s easier to target than the awful tobacco products distributors? It is true that taxes will always tag along with selling tobacco, but if it is important to your company to keep these costs down, do not hesitate to speak out against them and make sure you are paying the right amount of tax.

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.