Tobacco taxes and e-cigarette legislation are the two biggest issues retailers are facing in the all-important tobacco category.
By Thomas Briant, Executive Director, National Association of Tobacco Outlets.
Of all the different tobacco legislative bills introduced this year in Congress and state legislatures, two issues stand out, namely higher cigarette and tobacco taxes and electronic cigarettes.
Federal Tax Legislation
In April, President Obama delivered his Fiscal Year 2014 Budget to Congress which includes a proposal to increase the federal cigarette tax by a 94 cents per pack increase to a new rate of $1.95 per pack and raise all other tobacco product tax rates by approximately 93%. This proposal is expected to raise $78 billion over the next 10 years to pay for an expansion of preschool education.
Shortly after the announcement of President Obama’s proposed increase, five U.S. Senators introduced a bill called the “Tobacco Tax and Enforcement Reform Act” that would implement reforms to respond to illegal tobacco trafficking, tax all tobacco products on a parity with the federal cigarette tax, and raise the federal tax on all tobacco products by 93%.
To reduce illegal trafficking in tobacco products, the legislation would require unique markings on packages to assist law enforcement officials in tracking tax payments on tobacco products. There has not been a similar bill introduced in the U.S. House of Representatives.
State Tax Legislation
During the first six months of this year, some 27 state legislatures introduced and considered bills to raise tobacco tax rates. State lawmakers continue to seek out more cigarette and tobacco tax revenue despite the fact that over the past three years, 18 out of 21 states that raised cigarette tax rates collected less than the amount of projected new revenue. In most cases, states collected millions less than what was expected. These lower than expected collections are attributable, for the most part, to adults traveling to neighboring lower-taxed states to buy tobacco products and black market conditions.
With most state legislative sessions scheduled to adjourn by the end of June, the final outcome of state legislative efforts to further tax cigarettes and tobacco products will not be known for another 30 days. At presstime, the following states had bills pending to raise cigarette or OTP tax rates: Alabama, California, Delaware, Louisiana, Maine, Missouri, Nebraska, New Hampshire, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas and Vermont.
Besides tax increases being sought on traditional cigarettes, electronic cigarettes have also been the subject of state tax bills. In Hawaii and Utah bills that would have levied an excise tax on e-cigarettes were not passed. The Minnesota tax bill, if enacted, would increase the tax on e-cigarettes from the current 70% to 95% of the wholesale price. The Rhode Island legislature would subject e-cigarettes to the state’s OTP tax rate. In Oklahoma and South Carolina, pending bills would levy a tax of five cents per nicotine cartridge.
Age 21 Legislation
A new trend in tobacco-related legislation among states is to raise the legal age to purchase tobacco products to 19 or 21. Oklahoma and New York have bills that would increase the legal age to 19, and a second bill recently introduced in the New York legislature would raise the age further to 21. In addition, New Jersey, Oregon and Texas have legislation pending to raise the legal age to 21.
In addition to the various tax bills applying to e-cigarettes, many states considered legislation prohibiting the sale of e-cigarettes to anyone under 18. These states include Alabama, Arkansas (signed into law), Arizona, Georgia, Hawaii (failed to meet committee deadline for passage), Indiana (signed into law), Mississippi (signed into law), Missouri, New Hampshire (includes e-cigarettes under the definition of “cigarette”), North Carolina, Ohio, South Carolina, Washington and West Virginia.