State and local governments levy taxes on various tobacco products, including cigarettes, chewing and smokeless tobacco (often referred to as "other tobacco products"), and 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 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 products) 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 2020, which was 0.5 percent of state and local general revenue. State taxes accounted for 98 percent of tobacco tax revenue in 2020.
The Census Bureau does not break out tax revenue from different tobacco products, but tobacco tax revenue overwhelmingly comes from taxes on cigarettes. For example, a report from the North Carolina Department of Revenue found that in fiscal year 2020, cigarette tax revenue accounted for 81 percent of the state's tobacco-related tax revenue.
And even though the popularity of vaping has increased in recent years, the resulting tax revenue is still relatively 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 million in fiscal year 2020, or 2 percent of the state's tobacco-related revenue. Similarly, the National Conference of State Legislatures found annual revenue estimates for new state vaping taxes enacted in 2019 and 2020 ranged from $1 million in Vermont to $16 million in Kentucky.
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, followed by Georgia ($0.37), North Dakota ($0.44), and North Carolina ($0.45). The District of Columbia has the highest state-level rate at $4.50 per pack. Connecticut, New York, and Rhode Island also have state cigarette tax rates above $4 a 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 levied by the city of Chicago ($1.18) and Cook County ($3.00) are included.
In total, 10 states allow local governments to levy an additional excise tax on cigarettes: Alabama, Alaska, Colorado, Illinois, Missouri, New York, Ohio, Pennsylvania, Tennessee, 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, which when added to the state's tax, creates a $5.85 per pack tax for the consumer. According to the Campaign for Tobacco Free Kids, nearly 650 localities across these states levy cigarette taxes. Additionally, San Francisco levies a $1.25 per pack "cigarette litter abatement fee" even though California cities cannot levy an excise tax on cigarettes.
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 the manufacturer's price in South Carolina to 95 percent of the wholesale price 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 vaping products. As of January 2023, 30 states and the District of Columbia taxed vaping products. Additionally, there are local taxes on vaping, but no state tax, in Alaska and Nebraska. Some states use a percentage of price tax on vaping products, some use a per unit tax, and some use both taxes.
Twenty states and the District of Columbia levy a percentage of price tax, ranging from 7 percent in Georgia to 95 percent in Minnesota. Many of these states added vaping products to their state's definition of "other tobacco products," making them eligible for the state's existing OTP tax.
Sixteen 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 four states) to 40 cents per milliliter in Connecticut.
The sum of these two tax types is larger than the total number of states taxing vaping products because some states levy both taxes depending on the type of vaping product. Specifically, some states levy a percentage of price tax on "open" vaping products, where the liquid is filled by the user, and a per milliliter or per-cartridge tax on "closed" vaping products, which are products prefilled with liquid for immediately use. For example, Kentucky levies a $1.50 per cartridge tax on "closed" products and a 15 percent of wholesale price tax on open products, and Connecticut levies a 10 percent tax on open products in addition to its per milliliter tax on closed products. Additionally, Maryland levies different percentage of price taxes on "open" and "closed" products, with a higher rate on vaping liquid sold in containers smaller than 5 ml. Anti-vaping advocates argue closed products, such as those sold by the company JUUL, target young people.
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