Par for the course, a number of U.S. states are looking to score budgetary relief by levying taxes on tobacco.
By CSD Staff
Now that almost all of the state legislatures have concluded their 2016 legislative sessions, Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO) recently sat down with Convenience Store Decisions to explain the array of state tobacco legislation being discussed across the country and the potential financial effects on the convenience store channel.
CSD: In the past couple of years, bills were introduced in approximately one-half of the state legislatures seeking to increase either cigarette or tobacco product excise taxes, but only one or two states would actually enact higher tax rates. Did that trend hold true for 2016?
TB: Just as in past years, some 22 states considered bills to increase cigarette and/or tobacco product tax rates. These states included Alaska, California, Florida, Georgia, Hawaii, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Nebraska, New Jersey, New Mexico, New York, Oklahoma, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia.
However, only three of these states passed and enacted tax increases including Louisiana (22-cents-per-pack cigarette tax increase), Pennsylvania ($1-per-pack cigarette tax increase and a new OTP (other tobacco products) tax rate of 55 cents per ounce, which excludes cigars, and West Virginia (65-cents-per-pack cigarette tax increase and another 5% tax rate hike on OTP).
CSD: What about initiatives to put a question on the November ballot to raise cigarette or OTP taxes?
TB: Although the California legislature didn’t pass a bill to raise the state cigarette and OTP tax rates, a petition to place a question on the November ballot was certified, which means California voters will vote on whether to raise the cigarette and OTP tax rates by $2 per pack and increase the OTP tax rate proportionately in line with the higher cigarette tax.
In Missouri, there are two pending ballot questions. One ballot question would increase the state’s current 17-cent-per-pack cigarette tax rate to 23 cents per pack by 2021 and the OTP tax rate by another 5%. The second ballot question would increase the cigarette tax rate by 60 cents per pack by the year 2020 and impose a 67-cent-per-pack fee on those cigarette manufacturers that are not a part of the Master Settlement Agreement.
Also, North Dakota residents will be voting on a ballot question about whether to raise the cigarette tax by $1.76 per pack and double the OTP tax from 28% to 56% of the wholesale price. In addition, petitions are being circulated in Colorado in an attempt to qualify a question for the November ballot that would raise the cigarette tax to $1.74 per pack and increase the OTP tax by another 22%.
CSD: We have also seen an increasing number of states introduce legislation to assess a new tax on e-cigarettes and vapor products. Did that trend hold true again this year?
TB: This year, 16 states considered bills to enact a new tax: Hawaii, Kentucky, Maine, Maryland, Michigan, Mississippi, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia.
Of those 16 state bills, only two were enacted into law. Pennsylvania passed an e-cigarette and vapor products tax of 40% on the wholesale price and West Virginia adopted an excise tax on e-cigarettes and vapor products at the rate of 7.5 cents per milliliter of nicotine.
CSD: Why the different methods of taxation on e-cigarettes and vapor products between Pennsylvania and West Virginia?
TB: State legislatures have taken different approaches to assessing a tax on e-cigarettes. One method is to apply the state OTP tax rate, which is usually a percentage of the wholesale price. Another method is a tax on each milliliter of liquid nicotine contained in a sealed cartridge or in a bottle of e-liquid. Yet a third method is to apply the state cigarette tax rate to an e-cigarette or e-liquid.
CSD: Have state legislatures continued to consider bills to raise the legal age to purchase tobacco products?
TB: During 2016, 17 state legislatures had bills introduced to raise the legal age to purchase tobacco products to either age 19 or age 21. So far this year, only California enacted a statewide law to increase the legal minimum age to 21. California joins Hawaii as the only two states with a law raising the minimum age to purchase tobacco to 21.
Bills introduced to raise the legal age to 21 that did not pass were considered by lawmakers in Connecticut, Illinois, Kentucky, Maryland, Massachusetts, Mississippi, New Jersey, New York, Oklahoma, Rhode Island, Tennessee, Utah, Vermont, Washington and West Virginia. Also, a bill in Iowa that would have raised the legal age to 19 years old failed.
CSD: We have heard that local tobacco ordinances are the real battleground for tobacco retailers. Can you elaborate on this?
TB: For the past couple of years, NATO has been tracking and opposing a growing number of local tobacco ordinances.
Local issues are the real battleground on tobacco restrictions with some 480 local ordinances proposed in 2015 and an estimated 675 will be proposed this year.
One of the major local regulatory trends is a ban on the sale of flavored tobacco products. Cities in six states have adopted flavor bans, including 60 cities and towns in Massachusetts, nine in California, six in both Minnesota and New York, three in New Jersey and two in Illinois.
On the minimum legal age issue, numerous cities in 12 different states have adopted a higher legal age, including 128 cities and towns in Massachusetts, 19 localities in New Jersey, 10 cities in Kansas, five towns in Missouri, New York and Ohio, three cities in Illinois, two cites in both Utah and Washington, and one city in Arizona, Florida and Idaho.