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 and tobacco.
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.