EXTRAS ON EXCISE: STATE BALLOT INITIATIVES AIMED AT INCREASING TOBACCO TAXES

Taxpayers are used to lining up at the polls on Election Day to vote for their preferred candidates. State ballot initiatives, however, sometimes receive backburner treatment due to the drama of national politics. This year, four states have initiatives that would impose tobacco tax increases if approved, leaving it to voters to decide whether or not to raise taxes.

Below is a summary of these ballot initiatives to provide guidance on the increases that residents in these states may see in coming months if the initiatives are approved. The focus of the covered initiatives is on the states’ tobacco taxes which are generally split between cigarette taxes and “other tobacco products” (OTP). OTP typically includes cigars and chewing tobacco, with some state variance.

California

California’s Proposition 56 would impose an additional $0.10 per cigarette tax, increasing the tax on a 20-pack of cigarettes from $0.87 to $2.87. The proposition would also impose an equivalent tax increase on OTP, including electronic cigarettes. Revenue from the tax increase is estimated to reach between $1 and $1.4 billion in fiscal year 2017-2018, with a possible decrease in future years. New revenue would be used to fund tobacco use prevention and health care programs, and support law enforcement efforts aimed at reducing tobacco product counterfeiting and smuggling.

Members of the coalition Yes On 56, a group of supporters of Proposition 56, include a variety of elected officials, organizations and advocacy groups including the American Cancer Society Cancer Action Network, American Heart Association and the American Lung Association.

The opposition, including members of the No On 56 coalition, funded by Philip Morris USA Inc. and R.J. Reynolds Tobacco Company, argue that much of the new tax revenue would go to insurance companies and would take funding away from schools, instead of providing additional funds.

Colorado

An increase in tobacco sales for the first time in over a decade has led a broad coalition of health policy advocates, medical experts and organizations to form the Campaign for a Healthy Colorado, which introduced Amendment 72.

Colorado’s $0.84 tobacco excise tax would increase by $1.75 per 20-pack under Amendment 72, bringing the total tax to $2.59. It would also increase the excise tax on OTP by an additional 22 percent of the manufacturer’s list price, to 62 percent. Notably, Colorado’s initiative excludes e-cigarettes.

Amendment 72, if passed, is estimated to generate $315.7 million in revenue beginning Jan. 1, 2017, which would go towards health-related programs, research, tobacco use prevention and other programs.

The Campaign for a Healthy Colorado argues that “raising the cigarette tax is the most effective way to reduce smoking and to stop tobacco companies from getting more children and adults addicted to cigarettes for the rest of their lives.”

Conversely, No on Amendment 72, also known as No Blank Checks in the Constitution, which is funded by Altria Client Services LLC, argues against the tax because less than 20 percent of revenues would be dedicated to smoking prevention, and other revenues would go towards programs that have yet to be determined.

Missouri

Missouri is a stand-out state when it comes to its measures to increase tobacco taxes because the state has two dueling initiatives on the ballot. The measures have also found unlikely allies in tobacco companies that support a tax increase.

Proposition A would increase the cigarette tax on a 20-pack of cigarettes by $0.23 over a five-year period. Currently, Missouri’s cigarette tax is $0.17. If Proposition A is passed, the tax would increase to $0.30 on Jan. 1, 2017, to $0.35 on Jan 1, 2019 and to $0.40 on Jan. 1, 2021. This measure would also impose an additional 5 percent tax on OTP, effective Jan. 1, 2017. Once the tax reaches $0.40 per pack, revenue is estimated to reach between $95 and $103 million annually. The proceeds would be used for state transportation infrastructure.

Constitutional Amendment 3 would impose an annual $0.15 tax increase for four years to a maximum tax of $0.77 in 2020. Additionally, a $0.67 per 20-pack equity assessment fee would be imposed on the purchase, storage, handling, distribution or wholesale of cigarettes produced by manufacturers that did not participate in the 1998 Tobacco Master Settlement Agreement. Constitutional Amendment 3 is estimated to generate between $263 and $374 million in revenue annually, which would be used for education and health care programs.

Interestingly, supporters of Amendment 3 include large tobacco companies because the equity assessment imposed on non-participating manufacturers would reduce smaller tobacco companies’ market share by raising their prices, potentially generating more sales for larger companies.

For both initiatives, the opposition is composed of organizations that typically support tobacco tax increases but argue that, neither measure raises the cigarette tax enough. The opposition argues that in order to decrease tobacco use and cut health care costs, the tax should be raised at least a full $1, as reported by The Missouri Times.

North Dakota

Measure 4 will ask North Dakota voters to increase the state’s cigarette tax by 400 percent, from $0.44 per 20-pack to $2.20. The tax on OTP would increase from 28 percent to 56 percent of the wholesale purchase price.

The initiative is estimated to generate $200 million in the first two years, according to a report by the North Dakota Legislative Council, to be used for veteran’s programs and community health programs.

Supporters, including the Raise It for Health North Dakota coalition, argue that the tax increase will reduce tobacco use and addiction, diminishing health care costs and raising money for other necessary programs.

North Dakotans Against the 400% Tax Increase, which includes support from Altria Client Services LLC and R.J. Reynolds Tobacco Company, opposes the measure, calling it a “blank check for bureaucrats and political insiders to direct millions of dollars in spending” that would not reduce tobacco use.

Given the potential tax implications—and impact on tobacco product users, retailers and manufacturers—it is important for voters to stay well-informed on these measures. Stay connected to Bloomberg BNA to see the impacts resulting from these measures after Election Day.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Is a tobacco tax increase a fair way to improve public health and revenue issues?

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Audryana Camacho and Veronica Shade, State Tax Law Editors, Bloomberg BNA contributed to this piece.