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. 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).
Tobacco-related taxes are collected from the producer or seller of the product and not the retailer. However, 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 $19 billion in revenue from tobacco taxes in 2017, which was less than 1 percent of state and local general revenue. State taxes accounted for 98 percent of tobacco tax revenue in 2017.
The Census Bureau does not break out tax revenue from different tobacco products but it is overwhelmingly from taxes on cigarettes. A report from the North Carolina Department of Revenue found cigarette tax revenue accounted for 90 percent of state tobacco tax revenue in 2017. And even though the popularity of vaping has increased in recent years, the resulting tax revenue is still miniscule compared with taxes on cigarettes. 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. (Cigarette tax rates are higher in some states when local taxes are included.) Connecticut, New York, and Rhode Island also have state cigarette tax rates above $4 a pack. In contrast, Georgia, Missouri, North Carolina, North Dakota, and Virginia all have state cigarette tax rates 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.
All states also levy taxes on non-cigarette tobacco products such as chewing tobacco. Most state taxes on "other tobacco products" are as a percentage of price, ranging from 5 percent of wholesale price in South Carolina to 96 percent in the District of Columbia. 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 2020, 21 states and the District of Columbia tax these products. Additionally, there are local taxes on vaping, but no state tax, in Alaska and Maryland.
Nine states and the District of Columbia levy a percentage of price tax on vaping products, ranging from 15 percent in Illinois to 96 percent in the District of Columbia. Many of these states tax vaping products by including them in their definitions of other tobacco products—and thus vaping products are taxed at the same rate as as other tobacco products .
Eight states levy a per unit tax on vaping products based on the liquid that delivers nicotine to the smoker. These tax rates range from 5 cents per milliliter (in five states) to 10 cents per milliliter in Ohio. Washington levies a higher tax rate (27 cents per milliliter) on smaller containers (fewer than 5 milliliters) than larger containers (9 cents per milliliter).
Connecticut, New Hampshire, New Jersey, and New Mexico use both taxes—each for a different type of vaping product. For example, New Hampshire levies a 30 cent per milliliter tax on "closed" products (i.e., products that are prefilled with liquid) and an 8 percent of price tax on "open" products (i.e., the liquid is filled by the user).
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)
Richard C. Auxier (2016)