Cigarette taxes are selective sales taxes collected from the producer or seller of the product. However, the tax, levied per pack of cigarettes, is included in the final purchase price and passed on to consumers.
Cigarette taxes are sometimes called a corrective or “sin tax” because, unlike a general sales tax, they are used in part to discourage the use of cigarettes because the choice to use them has costs both to the user and to other people (such as increased health care costs). State and local governments tax alcohol, and have begun taxing marijuana and soda and other sugar-sweetened beverages, in a similar way.
- How much revenue do state and local governments raise from taxes on cigarettes?
- How much do cigarette tax rates differ across states?
- Further reading
State and local governments collected $18.4 billion in revenue from tobacco taxes in 2016, which was less than 1 percent of state and local general revenue. State taxes accounted for 97 percent of tobacco tax revenue in 2016.
Tobacco tax revenue is overwhelmingly from taxes on cigarettes, but states also tax other tobacco products, such as chewing tobacco and smokeless tobacco. The consumption of these products and the resulting tax revenue are very small, though.
All states and the District of Columbia tax cigarettes, but rates vary significantly. As of January 2019, Missouri imposes the lowest state cigarette tax rate ($0.17 per pack) while the District of Columbia had the highest tax at $4.50 per pack. Connecticut, Rhode Island, and New York also had cigarette taxes above $4 a pack. In contrast, Georgia, Missouri, North Carolina, North Dakota, and Virginia all had cigarette taxes below $0.50 per pack.
In nine states, local governments are allowed to levy an additional tax on cigarettes: Alabama, Alaska, Colorado, Illinois, Missouri, New York, Ohio, Pennsylvania, and Virginia. Local tax rates range from 1 cent per pack in some Alabama localities to $4.18 per pack in Chicago, Illinois (city tax plus county tax). New York City’s cigarette tax is $1.50 per pack.
Many states and localities are now considering taxing electronic cigarettes (also called vaping products). California, Delaware, the District of Columbia, California, Kansas, Louisiana, Minnesota, North Carolina, and Pennsylvania levy state taxes on e-cigarettes, while localities tax these products in Alaska, Illinois, and Maryland. New York will levy a 20 percent sales tax on vape products beginning in December 2019.
Should We Tax Internalities Like Externalities?
Donald Marron (2015)
How Should Governments Use Revenue from Corrective Taxes?
Adele C. Morris and Donald Marron (2016)
Richard C. Auxier (2016)