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committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports
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F I S C A L I M P A C T R E P O R T
SPONSOR Grubesic
ORIGINAL DATE
LAST UPDATED
2/17/07
HB
SHORT TITLE INCREASE TOBACCO PRODUCTS TAX
SB 888
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
1,541.0
1,525.0 Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Campaign for Tobacco Free Kids
Responses Received From
Taxation and Revenue Department (TRD)
Department of Health (DOH)
SUMMARY
Synopsis of Bill
Senate Bill 888 increases the excise tax on tobacco products other than cigarettes from 25
percent to 40 percent.
There is no effective date so by default the effective date is June 15, 2007.
FISCAL IMPLICATIONS
Raising the tax rate on tobacco products will increase revenue collected but not by the full
amount at current consumption due to elasticity effects. The elasticity on tobacco products is
estimated to be -1.18 meaning that there is a negative response to a price increase. Combined
with the increase in the tax, the net effect is to lower consumption of tobacco products by 18
percent, according to the Taxation and Revenue Department (TRD). The Department of Health
pg_0002
Senate Bill 888 – Page
2
(DOH) reports that this negative elasticity presented itself when the tax on cigarettes was raised:
New Mexico’s increase in the cigarette tax from $0.21 to $0.91 per pack in 2003, which
may have reduced cigarette smoking among youth, also carried the potential unintended
consequence of increasing the use of smokeless and other tobacco products among youth.
SB888 would decrease the price disparity between cigarettes and other tobacco products,
thereby discouraging youth and adults from switching from cigarettes to other tobacco
products.
Table 1: Fiscal Impact with Elasticity Effect
2008
2009
Base $19,454
$19,259
Rate @ 25% 25%
25%
Tobacco Products Tax $4,863
$4,815
Snuff is 85% of the Revenue $16,535
$16,370
Average Price Per Can
2.50 2.50
Cans
6,614 6,548
Units After Elasticity Effect
5,443 5,389
New Base $13,609
$13,473
Tax @ 40% $5,443
$5,389
Cigars & Other $2,918
$2,889
Average Price per Unit $3.50
$3.50
Units
834 825
Units After Elasticity Effect
686 679
New Base
2,402 2,378
Tax @ 40% $961
$951
General Fund $6,404
$6,340
New Revenue to General Fund $1,541
$1,525
Source: TRD
SIGNIFICANT ISSUES
Of the states that levy a tobacco tax based on value, the average tax 31 percent. The average for
the states near NM is 41 percent. Table 2, compiled by Campaign for Tobacco-Free Kids shows
all of the tax rates by type of non-cigarette tobacco.
pg_0003
Senate Bill 888 – Page
3
Table 2: Sate Tobacco Tax Rates
State
Smokeless & Chewing
Tobacco Tax
Cigar Tax
Smoking Tobacco
Tax
Snuff Tax
Alabama 1.5 cents/ounce 4.0 to 40.5 cents/10 cigars 4.0-6.0 cents/ounce 1.0-12.0 cents/ounce
Alaska 75% wholesale price 75% wholesale price 75% wholesale price 75% wholesale price
Arizona† 22.25 cents/ounce 20.25 to 218 cents/10 cigars 22.25 cents/ounce 22.25 cents/ounce
Arkansas 32% manufacturers price 32% manufacturers price 32% manufacturers
price
32% manufacturers
price
California* 54.89% wholesale price 54.89% wholesale price 54.89% wholesale
price
54.89% wholesale
price
Colorado 40% manufacturers price 40% manufacturers price 40% manufacturers
price
40% manufacturers
price
Connecticut 20% wholesale price 20% wholesale price 20% wholesale price 40 cents/ounce
Delaware 15% wholesale price 15% wholesale price 15% wholesale price 15% wholesale price
DC 12% retail price 12% but not on $2+ cigars 12% but not pipe
tobacco
12% retail price
Florida 25% wholesale price None
25% wholesale price 25% wholesale price
Georgia 10% wholesale price 2.5 cents/10 cigars; 23%
wholesale
10% wholesale price 10% wholesale price
Hawaii 40% wholesale price 40% wholesale price 40% wholesale price 40% wholesale price
Idaho 40% wholesale price 40% wholesale price 40% wholesale price 40% wholesale price
Illinois 18% wholesale price 18% wholesale price 18% wholesale price 18% wholesale price
Indiana 18% wholesale price 18% wholesale price 18% wholesale price 18% wholesale price
Iowa 22% wholesale price 36 cents/cigar
22% wholesale price 22% wholesale price
Kansas 10% manufacturers price 10% manufacturers price 10% manufactures
price
10% manufacturers
price
Kentucky 7.5% wholesale price 7.5% wholesale price 7.5% wholesale price 9.5 cents/unit†
Louisiana 20% manufacturers price 8%-20% manufacturers price 33% manufacturers
price
20% manufacturers
price
Maine 78% wholesale price 20% wholesale price 20% wholesale price 78% wholesale price
Maryland 15% wholesale price 15% wholesale price 15% wholesale price 15% wholesale price
Massachusetts 90% wholesale price 30% wholesale price 30% wholesale price 90% wholesale price
Michigan 32% wholesale price 32% wholesale price 32% wholesale price 32% wholesale price
Minnesota 70% wholesale price 70% wholesale price 70% wholesale price 70% wholesale price
Mississippi 15% manufacturers price 15% manufacturers price 15% manufacturers
price
15% manufacturers
price
Missouri 10% manufacturers price 10% manufacturers price 10% manufacturers
price
10% manufacturers
price
Montana 50% wholesale price 50% wholesale price 50% wholesale price 85 cents/ounce
Nebraska 20% wholesale price 20% wholesale price 20% wholesale price 20% wholesale price
Nevada 30% wholesale price 30% wholesale price 30% wholesale price 30% wholesale price
New
Hampshire
19% wholesale price None
19% wholesale price 19% wholesale price
New Jersey 30% manufacturers price 30% manufacturers price 30% manufacturers
price
75 cents/ounce
New Mexico 25% manufacturers price 25% manufacturers price 25% manufacturers
price
25% manufacturers
price
New York 37% wholesale price 37% wholesale price 37% wholesale price 37% wholesale price
N
orth Carolina 3% wholesale price 3% wholesale price 3% wholesale price 3% wholesale price
North Dakota 16 cents/ounce 28% wholesale price 28% wholesale price 60 cents/ounce
Ohio 17% wholesale price 17% wholesale price 17% wholesale price 17% wholesale price
Oklahoma 60% manufacturers price 36 to 120 cents/10 cigars 80% manufacturers
price
60% manufacturers
price
Oregon 65% wholesale price 65% wholesale price 65% wholesale price 65% wholesale price
Pennsylvania None
None
None
None
Rhode Island 40% wholesale price 40% wholesale price 40% wholesale price 100 cents/ounce
South Carolina 5% manufacturers price 5% manufacturers price 5% manufacturers
price
5% manufacturers
price
South Dakota 35% wholesale price 35% wholesale price 35% wholesale price 35% wholesale price
Tennessee 6.6% wholesale price 6.6% wholesale price 6.6% wholesale price 6.6% wholesale price
Texas 40% manufacturers price 1 to 15 cents/10 cigars 40% manufacturers 40% manufacturers
Utah 35% manufacturers price 35% manufacturers price 35% manufacturers
price
35% manufacturers
price
Vermont* 41% manufacturers price 41% manufacturers price 41% manufacturers
price
$1.49/ounce
Virginia 10% manufacturers price 10% manufacturers price 10% manufacturers
price
10% manufacturers
price
Washington 75% taxable sales price 75% taxable sales price 75% taxable sales price 75% taxable sales price
West Virginia 7% wholesale price 7% wholesale price 7% wholesale price 7% wholesale price
Wisconsin 25% manufacturers price 25% manufacturers price 25% manufacturers
price
25% manufacturers
price
Wyoming 20% wholesale price 20% wholesale price 20% wholesale price 20% wholesale price
US
Government
1.2 cents/ounce $1.828 to $48.75/1000 7 cents/ounce 4 cents/ounce
†Effective 5/1/07. *Snuff changed from 41% of manufactures price to $1.49 per ounce on 7/1/06; will increase again to $1.69 on 7/1/08. States in bold type
raised their non-cigarette taxes in 2002; states with cigarette tax rate in bold raised their cigarette tax rates since 1/1/02. Manufactures Price is the price
charged to wholesalers/distributors by the tobacco company that makes the product. Wholesale Price is either the price charged to retailers by the
wholesalers/distributors or, in some states, it is the same as the Manufactures Price. Check state statutes for details. Current price charged by the major
cigarette manufacturers to wholesalers is approximately $2.28 per pack. Economic Resource Service, USDA,
http://www.ers.usda.gov/Briefing/tobacco/Data/table9.pdf. New Jersey lowered its non-cigarette tax from 48% of wholesale price to 30% in 2002.
Washington State lowered its non-cigarette tax from 129.42% to 75% in 2005.
Sources: Orzechowski & Walker, The Tax Burden on Tobacco, 2005; Federation of Tax Administrators, 2004, http://www.taxa dmin.org; press re ports; U.S.
Bureau of Alcohol, Tobacco & Firearms, http://www.atf.treas.gov/alcohol/info/faq/subpages/atftaxes.htm. For more information on state tobacco taxes (and
the benefits from increasing them), see the Campaign's website at http://tobaccofreekids.org/reports/prices.
pg_0004
Senate Bill 888 – Page
4
Department of Health:
About 8.5% of New Mexico youth report using smokeless tobacco (2005 NM Youth Risk
& Resiliency Survey) compared to 3.2% of adults (2003 NM Adult Tobacco Survey).
Passage of SB888 may help to eliminate this disparity by preventing youth initiation of
tobacco products and encouraging cessation, as youth are more price-sensitive than
adults.
PERFORMANCE IMPLICATIONS
DOH reports that lowering tobacco use is one of their agency performance measures and SB888
will help them achieve their target.
ADMINISTRATIVE IMPLICATIONS
Without an effective date, the tax increase will go into effect on June 15, 2007. This will cause
significant confusion for both the taxpayers and TRD. TRD:
“
A June 15 effective date would be
difficult for the department to implement. The 15th is the middle of the reporting period and
would cause systems and compliance issues. A July 1, 2007 is suggested to all the department
time to adequately implement the provisions of this bill."
ALTERNATIVES
An effective date of July 1, 2007, would be an administratively sensible amendment.
NF/nt