During the Louisiana State Legislature’s First Extraordinary Session of 2016, legislators brought down the hammer on some of society’s most prevalent vices – cigarettes and alcohol – by increasing taxes and reducing tax discounts. The state is facing dire budgetary circumstances, including a deficit that could approach $750 million in fiscal year 2017, according to some reports.
H.B. 14, which went into effect on April 1, 2016, increases the Louisiana cigarette tax by 22 cents per pack. This is particularly significant because it has not even been a full calendar year since Louisiana last increased the cigarette tax; that increase was a whopping 50 cents per pack.
Prior to the 2015 increase, Louisiana had the third lowest cigarette tax in the country at 36 cents per pack. Louisiana’s cigarette tax is now $1.08 per pack after this most recent legislation and still considerably lower than the U.S. median tax rate of $1.53 per pack, according to data from the Federation of Tax Administrators as of Jan. 1, 2016.
In addition to increasing the cigarette tax, Louisiana rolled back tax discounts available to tobacco dealers in H.B. 18. The Louisiana tax stamp discount for in-state dealers was reduced from 6 percent to 5 percent. The discount for out-of-state wholesale tobacco dealers is now firmly at 5 percent; under prior law their discount could be up to 6 percent. Also, the discount offered to tobacco dealers for timely and accurate filing of their tobacco returns was reduced from 6 percent to 5 percent.
The legislature also set its sights on alcoholic beverage taxes and discounts during the special session. H.B. 28 decreased the tax discounts for accurate reporting and remitting of the tax due. For low alcoholic-content beverages, the discount is now 1.5 percent of the tax due and for high alcoholic-content beverages, the discount is now 2.5 percent of the tax due. H.B. 27, which also went into effect on April 1, 2016, increased the excise taxes on every class of alcoholic beverage sold in Louisiana.
The tax on liquors was increased to 80 cents per liter, up from 66 cents. The tax on both sparkling wines and still wines with more than 24 percent alcohol by volume was increased to 55 cents per liter, up from 42 cents. The tax on low-alcohol content still wines was increased to 20 cents per liter, a considerable increase from 3 cents per liter; while the tax on still wines with between 14 and 24 percent alcohol by volume was increased to 35 cents per liter, also a considerable increase from 6 cents per liter. Finally, the tax on both beer and malt beverages was increased to $12.50 per barrel, from $10 per barrel.
Based on analysis completed by the Louisiana Legislative Fiscal Office, the increased cigarette tax will generate an additional $46 million in tax collections for fiscal year 2017 and $230 million over the next 5 years. Similarly, the increases in alcoholic beverage taxes are expected to generate an additional $19.2 million in revenue for fiscal year 2017 and an additional $97.4 million over the next 5 years.
While the projected increases in sin tax collections represent only a small percentage of Louisiana's expected budget deficit in 2017, it will be much-needed revenue for the cash-strapped state.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will increasing taxes be enough to cure Louisiana’s budget pains?
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