Extras on Excise: A New Fiscal Year Brings Increases to Cigarette and Fuel Taxes

The start of the new fiscal year on July 1 means a rise in cigarette and fuel taxes for some states. Fueling up at the pump will leave wallets a little lighter for residents in Oklahoma, South Carolina, and Tennessee. And in Oklahoma and Kentucky, the price increase on a pack of 20 cigarettes may have residents considering nicotine alternatives such as electronic cigarettes, which are currently untaxed in both states.

South Carolina and Tennessee both have increases to their fuel taxes as part of a gradual tax increase that will take place over a period of years, as previously reported.

Beginning July 1, South Carolina’s motor fuel user fee increased from $0.16 per gallon to $0.18 per gallon. The fee is set to increase by $0.02 on July 1 of each year through July 1, 2022.

Tennessee’s fuel tax rates increased by adding $0.01 to the existing gasoline and diesel tax rates. Effective July 1, 2018, the fuel tax rates are $0.25 per gallon of gasoline and $0.24 per gallon of diesel fuel.

Kentucky’s 2018 H.B. 487, enacted earlier this year as part of a larger state tax reform package,  increased the surtax on cigarettes by $0.50 a pack beginning July 1, raising the total excise tax from $0.60 to $1.10.

Enacted in March, Oklahoma’s 2018 H.B. 1010XX imposes a variety of additional taxes, including rate increases for cigarette and fuel taxes. The bill adds an additional $1 excise tax on packs of cigarettes, raising the tax from $1.03 to $2.03.

H.B. 1010XX also adds an additional motor fuel excise tax beginning July 1, which levies an additional $0.03 per gallon tax on gasoline and $0.06 per gallon tax on diesel fuel. Current fuel tax rates are $0.16 per gallon of gasoline and $0.13 per gallon of diesel fuel.

The passage of H.B. 1010XX has been highly debated, and even lead to a referendum petition that would have allowed the people of Oklahoma to approve or reject the bill during the upcoming November election. However, the Supreme Court of Oklahoma nixed the petition by finding it legally insufficient. As such, the tax increases in the bill became effective July 1.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do tax increases to cigarettes and fuel effect your habits or travel plans? 

Get a free trial to Bloomberg Tax: State, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.