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F I S C A L I M P A C T R E P O R T

SPONSOR Lujan B

ORIGINAL DATE

LAST UPDATED

2/3/06

2/13/06 HB 673/aHFI#1

SHORT TITLE Taxation of “Moist Snuff”

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

310.0

307.0 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Taxation and Revenue Department (TRD)

Department of Health (DH)

Responses Received From

Taxation and Revenue Department (TRD)

Department of Health (DH)

SUMMARY

Synopsis of Amendment

The House amended House Bill 673 stipulates that any can of moist snuff that weighs less than

one ounce will be taxed as though it weighed one ounce. This amendment does not change the

fiscal impact.

Synopsis of Original Bill

House Bill 673 changes the way “moist snuff,” a tobacco product, is taxed. Currently, the prod-

uct is taxed based on 25 percent of value. HB 673 would make the tax based on weight at $0.63

per ounce. Moist snuff is defined as any tobacco product of a moist fine-grain tobacco, whether

cut, ground or powdered, prepared to be placed in the oral cavity of the user.

The effective date is July 1, 2006.

House Bill 673/aHFI#1– Page

2

FISCAL IMPLICATIONS

According to TRD, HB 673 taxes from moist snuff are included in the Tobacco Products Tax

revenues (TPT). Taxes from cigars, chewing tobacco and loose tobacco are also included in

TPT. According to the Tobacco Marketer Association, snuff tobacco accounts for 55% of to-

bacco products, individual state data was not available. Assuming moist snuff accounts for 55%

of the TPT, a 12% increase in the moist snuff tax would result in an increase of revenues to the

General Fund of $310,000 in FY2007 and $307,000 in FY 2008.

2007

2008

Tobacco Products Tax Revenues

4,870

4,822

Estimated share due to moist snuff

55% 2,679

2,652

Increase in Revenues

12% 310

307

The average 12% tax increase was estimated using price and sales data provided by industry rep-

resentatives, and illustrated in the table below. On the Tier 1 premium brands the tax increase

would be a 4% increase or $0.03 per can. The tax for mid priced brands would increase 38% and

the discount brands would increase 65%. Calculating a weighted average based on the share of

sales of each tier results in an overall increase of 12% in tax revenues to the General Fund.

Tax Per Can

Weighted Average

1st Pur-

chaser Price

25% of

Value

$.63/per

Oz Increase

% of

Sales

Tax In-

crease Price

Tier 1, Premium Brands

$2.91

$0.73 $0.76

4% 82%

3% $2.39

Tier 2, Mid Price Brands

$1.87

$0.47 $0.76 38% 12%

5% $0.22

Tier 3, Discount Brands

$1.05

$0.26 $0.76 65% 6%

4% $0.06

* Source US Tobacco

100% 12% $2.67

SIGNIFICANT ISSUES

Department of Health:

Products such as Skoal Bandits are sometimes referred to as “starter” tobacco products be-

cause they appeal to youth and others experimenting with the use of moist snuff (Spit To-

bacco and Kids Fact Sheet, www.tobaccofreekids.org).

Since the tax is shifting to a unit-based tax from a value-based tax, the tax reduction for premium

products that sell at a higher retail price will be greater than budget products.

ADMINISTRATIVE IMPLICATIONS

TRD reports that the administrative implications range from redesigning reports to educating

taxpayers on the different method of calculating the tax.

TECHNICAL ISSUES

TRD notes that on lines 9-10 on page 3, the phrase “in the following manner” should be changed

to “at the following rates”.

House Bill 673/aHFI#1– Page

3

OTHER SUBSTANTIVE ISSUES

TRD: Taxing tobacco products on a per unit basis is generally viewed as more fair and uniform

because similar products will pay the same tax. Under the current tax on value, identical prod-

ucts pay different taxes depending on where the first purchaser appears in the distribution chain.

The value tax essentially rewards the first purchaser who can obtain the lowest price, thus paying

fewer taxes on their products, and helping them maintain comparative advantage in the market.

The downside of per unit taxes is that they do not keep pace with inflation.

NF/yr:nt:mt