Cigarette and Vaping Taxes
State and local governments levy various taxes on tobacco products, including cigarettes, chewing and smokeless tobacco (often referred to as "other tobacco products"), and e-cigarettes and related vaping products. Different tobacco products are taxed in different ways: cigarettes are taxed per pack, other tobacco products are typically taxed as a percentage of price, and vaping products are taxed either per ounce of vaping liquid or as a percentage of price (depending on the product and the state).
All tobacco-related taxes are collected from the producer or seller of the product during the wholesale transaction and not the by the retailer. However, it is assumed that the tax is included in the final purchase price and thus passed on to consumers.
These taxes are sometimes called corrective or "sin taxes" because, unlike a general sales tax, they are used in part to discourage the use of tobacco (or vaping) because the choice to use it has costs both to the user and other people (such as increased health care costs). State and local governments tax alcohol, and have begun taxing marijuana and soda, in a similar way.
- How much revenue do state and local governments raise from taxes on cigarettes and vaping?
- How much do cigarette tax rates differ across states?
- How much do vaping tax rates differ across states?
- Further reading
State and local governments collected $20 billion in revenue from tobacco taxes in 2018, which was 0.6 percent of state and local general revenue. State taxes accounted for 98 percent of tobacco tax revenue in 2018.
The Census Bureau does not break out tax revenue from different tobacco products, but tobacco tax revenue largely comes from taxes on cigarettes. A report from the North Carolina Department of Revenue found that in fiscal year 2018, cigarette tax revenue accounted for 89 percent of US tobacco tax revenue.
And even though the popularity of vaping has increased in recent years, the resulting tax revenue is still small compared with tax revenue from cigarettes. In North Carolina, which has levied a tax on vaping products since 2015, taxes on vaping products produced $5.4 million in fiscal year 2019, or 2 percent of the state's tobacco-related revenue. A 2019 State Tax Actions survey from the National Conference of State Legislatures found revenue estimates for new state vaping taxes ranged from $1 million to $10 million annually..
All states and the District of Columbia tax cigarettes, but rates vary significantly. Missouri imposes the lowest state cigarette tax rate at just $0.17 per pack, while the District of Columbia has the highest at $4.50 per pack. Connecticut, New York, and Rhode Island also have state cigarette tax rates above $4 a pack. In contrast, Georgia, Missouri, North Carolina, and North Dakota all have state cigarette tax rates below $0.50 per pack.
The cigarette tax rate paid by consumers are higher in some states when local taxes are included, though. For example, Illinois’s state tax rate is $2.98 per pack but the consumer pays $7.16 per pack when taxes the city of Chicago and Cook County are included.
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. According to the Campaign for Tobacco Free Kids, more than 630 localities across these states levy cigarette taxes.
All states also levy taxes on non-cigarette tobacco products such as chewing tobacco. Most state tax "other tobacco products" as a percentage of price, ranging from 5 percent of wholesale price in South Carolina to 95 percent in Minnesota. However, a few states levy a per ounce tax on products like snuff and chewing tobacco.
In the past few years, many states and localities have added taxes on e-cigarettes and vaping products. In 2021, 29 states and the District of Columbia tax these products. Additionally, there are local taxes on vaping, but no state tax, in Alaska and Nebraska.
Twenty states and the District of Columbia levy a percentage of price tax on vaping products, ranging from 7 percent in Georgia to 95 percent in Minnesota. Many of these states tax vaping products this way by adding them to their state's existing definition of other tobacco products. As a result, vaping products are taxed at the same rate as other tobacco products in these states.
Fifteen states levy a per unit tax on vaping products. Most of these state taxes are based on the liquid that delivers nicotine to the smoker. These tax rates range from 5 cents per milliliter (in six states) to 40 cents per milliliter in Connecticut.
However, Connecticut, Georgia, Kentucky, New Hampshire, New Jersey, and New Mexico levy a per-cartridge tax on certain vaping products. All of these states levy their per-cartridge tax on "closed" vaping products, which are products prefilled with liquid. For example, the company JUUL makes closed vaping products, which anti-vaping advocates argue targets young people. These states all then levy a separate percentage of price tax on "open" vaping products, where the liquid is filled by the user. For example, Kentucky levies a $1.50 per cartridge tax on "closed" products and a 15 percent of price tax on “open” products. Similarly, Maryland levies different percentage of price taxes on "open" and "closed" products, with a higher rate on the former to further discourage purchases
Are States Betting on Sin? The Murky Future of State Taxation
Lucy Dadayan (2019)
Critical Value Podcast: #46 Sin Taxes Are Sweeping the States!
Richard Auxier and Lucy Dadayan (2020)
Should We Tax Internalities Like Externalities?
Donald Marron (2015)
How Should Governments Use Revenue from Corrective Taxes?
Adele C. Morris and Donald Marron (2016)
States should answer a few questions before taxing e-cigarettes
Richard C. Auxier (2016)