HB 156-FN-A - FISCAL NOTE
AN ACT reducing the rates of the tobacco tax.
The Department of Revenue Administration states this bill will decrease state revenues by an indeterminable amount in FY 2012 and each fiscal year thereafter, and increase state expenditures by $1,192,370 in FY 2012. There will be no fiscal impact on county and local revenues or expenditures.
The Department states this bill will decrease the tobacco tax rates on cigarettes from $1.78 per pack to $1.68 per pack and decrease the tobacco tax on other tobacco products (OTP) from 65.03% to 48% of product’s wholesale price. The Department states they are unable to determine the exact fiscal impact at this time since the impact on state revenues will depend on its effect on sales. In FY 2010, cigarette stamp sales minus the floor tax revenues totaled $227,458,830, based on an estimate 127,785,860 cigarette packs sold. The Department estimates if sales in FY 2012 were consistent with those of FY 2010, this bill would decrease cigarette tax revenue by $12,778,586 ($0.10 X 127,785,860 packs). For other tobacco products, FY 2010 revenue totaled $7,835,027, based on a wholesale price base of $12,048,327. The Department estimates if sales in FY 2012 were consistent with FY 2010, this bill would decrease OTP revenue by $2,051,830 (17.03% X $12,048,327 tax base). Assuming no change in sales from FY 2010, the total revenue decrease is estimated at approximately $14,830,416 ($12,778,586 + $2,051,860) in FY 2012.
However, the Department states the proposed decrease in the tobacco tax rate may actually increase sales by 2.7026% for cigarettes and 23.0236% for OTP. Using these projected sales growth rates, the Department estimates this bill could result in cigarette tax revenue of $220,482,193 [(127,785,960 X 1.027026) X $1.68], a decrease of $6,976,637 ($227,458,830 –$220,482,193). The Department estimates an OTP sales growth of 23.0236%. As a result, this bill could result in OTP revenue of approximately $7,114,697 [(12,048,327 X 1.230236) X 48%], a decrease of $720,330 ($7,835,027 –$7,114,697). Assuming sales growth at the rates stated above, the total revenue decrease is estimated at approximately $7,696,967 ($6,976,637 + $720,330) in FY 2012.
Although the Department is unable to determine the exact fiscal impact of this bill, they estimate the decrease in state revenue could total anywhere between $7,696,967 and $14,830,416 in FY 2012. The Department did not provide a projection of this bill’s fiscal impact beyond FY 2012.
The Department states this bill also includes a “reverse floor tax” or a refund to wholesalers for the difference between old and new tax rates on products remaining in inventory as of this bill’s effective date. In FY 2010, an increase in the tobacco tax resulted in a floor tax assessed on 10,274,027 packs of cigarettes. Using the same number of packs and OTP equivalents, the Department estimates this bill will result in $1,192,370 in refunds paid in FY 2012. The Department states it would incur some additional costs for reprogramming the Department’s computer systems for the rate changes, form revision, and auditing refunds, but these costs could be absorbed within their existing budget.