Cigarette Tobacco And Nicotine Products Tax
The act refers a ballot issue to the voters at the November 2020 general election for the following tax changes:
- To increase the statutory per cigarette tax from 1 cent to 6.5 cents until July 1, 2024, then to 8 cents until July 1, 2027, and thereafter to 10 cents;
- To increase the statutory tobacco products tax from 20% of the manufacturer's list price (MLP) to 30% of MLP until July 1, 2024, then to 36% of MLP until July 1, 2027, and to 42% thereafter of MLP for tobacco products;
- To create a tax on nicotine products that is equal to 50% of MLP until July 1, 2024, then 56% of MLP until July 1, 2027, and thereafter 62% of MLP, which is the same tax as the total tax levied on most tobacco products, including the tax from Amendment 35, with the increase;
- To establish a tax rate for cigarettes, tobacco products, and nicotine products that are modified risk tobacco products approved by the United States department of health and human services that is 50% of the statutory tax rate;
- To establish a minimum tax for tobacco products that are moist snuff;
- To expand the cigarette and tobacco products taxes to include delivery sales made by a seller outside of the state directly to a consumer; and
- To create an inventory tax on cigarettes that is imposed on all stamped cigarettes and unaffixed stamps in a wholesaler or wholesale subcontractor's possession or control at the time of a tax increase that takes place after January 1, 2022.
If voters approve the ballot measure, then the state will have the authority to impose these taxes and the rest of the act will be effective.
The act also establishes a minimum price for cigarettes that is equal to $7 for a pack and $70 for a carton until July 1, 2024, and $7.50 for a pack and $75 for a carton on and after July 1, 2024, and civil penalties imposed for any person who sells cigarettes for less than the minimum amount. A portion of the sales tax revenue that is estimated to be attributable to the minimum price requirement is transferred from the general fund to the newly created preschool programs cash fund, from which the general assembly may appropriate money to a designated department to be used for an array of preschool education purposes.
The new nicotine products tax is modeled after the tobacco products tax. Nicotine products are products that contain nicotine and that are ingested into the body, which at this time is typically through vaping with an electronic cigarette. The excise tax is levied on the sale, use, consumption, handling, or distribution of all nicotine products in the state, and it is imposed on a distributor at the time the product is brought into the state, made here, or shipped or transported to retailers in the state, or the wholesaler or distributor makes a delivery sale. If a distributor fails to pay the tax, then any person or entity in possession of the nicotine products is liable for the tax.
To be a distributor of nicotine products, a person must have a license. The license costs $10 per year and requires that the distributor must have a tax license and comply with all of the laws relating to the collection of the tax. Distributors are required to file electronic quarterly returns. Licensees are required to maintain certain records, and retailers are likewise required to maintain records about nicotine products they purchase from a licensed distributor. The department of revenue may share the names and addresses of persons who purchased nicotine products for resale with the department of public health and environment and county and district public health agencies.
To account for the fully phased-in increased taxes per cigarette, the discount percentage on cigarette stamps that a cigarette wholesaler may retain for its collection costs is reduced from 4% to .4% and the similar discount for a tobacco products distributor is reduced from 3.33% to 1.6%. A nicotine products distributor will be permitted to retain 1.1% of the taxes collected.
The revenue from the new nicotine products tax, the inventory tax, and the additional cigarette and tobacco products taxes is deposited in the old age pension fund and then credited to the general fund in accordance with the state constitution. The state treasurer is required to transfer an amount equal to the total new tax revenue from the general fund to the 2020 tax holding fund (holding fund). For fiscal years beginning prior to July 1, 2023, the bulk of the money in the holding fund will be transferred to the state education fund, and thereafter, to the preschool programs cash fund. In addition, the state treasurer is required to transfer varying amounts of money in different fiscal years from the holding fund to the following funds:
- The tobacco tax cash fund;
- The general fund;
- The housing development grant fund;
- The eviction legal defense fund;
- The newly created rural schools cash fund, which will in turn be distributed to small and large rural school districts based on funded pupil counts; and
- The tobacco education programs fund.
The state auditor is required to annually conduct a financial audit of the use of the new tax revenue.
(Note: This summary applies to this bill as enacted.)