NH House passes bill to reduce the tobacco tax by ten cents

[Keith and stuff]

Edit: HB 156 didn't actually become law but the 10 cent per pack cut part of the bill was written into the budget, which did pass.

The NH House passed HB 156 which appears to be revenue neutral to reduce the cigarette tax and on tobacco products other than cigarettes by ten cents. The vote was 236 to 93. NH is known as the place to go in New England to buy cigarettes. A friend of mine that lives near Boston goes to Salem, NH to buy cigarettes. If this bill becomes law, it will encourage even more people to travel to NH to buy cigarettes, that is why it is expected to be revenue neutral.

http://www.nhliberty.org/bills/view/2011/HB156
http://www.gencourt.state.nh.us/bill...llnumber=HB156

The again, the NH Department of Revenue Administration disagrees. It thinks this bill to lower taxes will cost the state of NH a lot of money and shrink the budget.

HB 156-FN-A - FISCAL NOTE

AN ACT reducing the rates of the tobacco tax.

FISCAL IMPACT:

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.

METHODOLOGY:

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.

[Keith and stuff]

Cigarette tax cut finds approval, dissension
By TOM FAHEY
State House Bureau Chief

http://webcache.googleusercontent.co...www.google.com

Democrats argued against the change, saying it will rob the state of $16 million in revenue every year.

Republicans countered that the tax cut in House Bill 156 (click to view status and text) will attract out-of-state customers to stores along the border, increasing not only cigarette sales but the sale of lottery tickets, alcohol and convenience store items.

An analysis by the non-partisan Legislative Budget Assistant's Office estimated a decrease in revenue of $15 million at current sales levels. It estimated that increased sales driven by the lower tax could cut the loss of revenue in half in 2012.

The bill will now go to the Senate, where Finance Chairman Chuck Morse, R-Salem, said he expects it to pass.

"I believe reducing the tax will be a revenue producer," he said.

Rep. Patrick Abrami, R-Stratham, said the state has seen tobacco tax revenue move toward stagnation as the rate increased from 80 cents in 2007.

He said Maine's rate of $2 a pack is dangerously close to New Hampshire's, which is the lowest in New England.

"We have reached the tipping point. We are hurting our merchants, and we are losing sales on our borders," Abrami said.

Rep. Christine Hamm, D-Hopkinton, argued against the change. She said no state has seen tobacco tax revenue increase after a tax cut.

"This is yet another expensive exercise in futility," she said. When it comes to tobacco, she said, "Every tax hike produces new revenue, and every tax cut reduces it."

Oregon tried a 10-cent cut, and saw revenues fall by 10 percent, she said.

"To do the same thing would be fiscally stupid," Hamm said.

She accused Republicans of taking "deliberate steps to reduce our revenues while they plead poverty in the face of our all too-apparent needs."

The tobacco tax rates in other New England states are $3 a pack in Connecticut; $2.51 in Massachusetts, $3.46; in Rhode island, and $2.24 in Vermont.

New Hampshire has raised its rate four times in the last five years, most recently in 2010. The rate was 52 cents a pack in 2005.

The tax cut had the support of the New Hampshire Grocers Association. It argued the cut will raise revenue by $13 million.

[Keith and stuff]

3 states seek to kick habit of raising cig taxes
http://news.yahoo.com/s/ap/20110319/..._tobacco_taxes

– Sat Mar 19, 12:18 am ET

CONCORD, N.H. – As some states look to tobacco tax increases to plug budget holes, a few are bucking the national trend and saying, "If you smoke 'em, we got 'em," looking at dropping the rate to boost cigarette sales.

In New Hampshire, supporters argue that reducing the tax by a dime would help the state compete with Maine, Vermont and Massachusetts, while opponents say it would still lose millions of dollars even if higher sales resulted.

New Hampshire's House voted Thursday to reduce the tax and sent the bill to the Senate, where its prospects are uncertain. New Jersey and Rhode Island have also considered reducing their taxes.

Aaron Evans, 25, weighed his potential new option Thursday as he stopped at a convenience store in Haverhill, Mass, for a sandwich and a $7.13 pack of Marlboro cigarettes. A pack would cost him $5.99 a couple miles away in New Hampshire, which already has significantly lower taxes than Massachusetts.

He welcomed any move to make smokes cheaper but said a dime a pack wouldn't make him change his buying habits.

"You've got to average it out," he said. "I could either drive all the way over to New Hampshire and waste the gas — it kind of evens it out."

It's very unusual for states to lower the tax, said Frank Chaloupka, an economics professor at the University of Illinois at Chicago. The sales increase isn't enough to offset the drop in tax revenue, he said.

States have enacted 100 increases over the past decade, he said.

New Hampshire raised its tax repeatedly since Democratic Gov. John Lynch took office in 2006, increasing it from 52 cents per pack in 2005 to $1.78 currently.

[Keith and stuff]

The NH budget, which became law with the NH governor's signature, reduces to cigarette tax by 10 cents. Unfortunately, the tax cut was only able to pass if it proves to be effective at increasing government revenue by encouraging the purchase of enough additional packs of cigarettes and so on to make up with difference. We shall see what happens in 2 years. As for now, the pro-jobs bill really helps the companies that sell cigarettes near the NH border.

A story related to this follows below.

http://www.nashuatelegraph.com/newss...rette-tax.html

Wednesday, June 22, 2011
Grocers laud plan to slash cigarette tax
By KEVIN LANDRIGAN

CONCORD – The proposed tax cut of 10 cents per pack of cigarettes will lead to an infusion of more hours for employees and new hires, the heads of the state lobbies for grocery and convenience stores said Tuesday.

Meanwhile, tobacco industry lobbyists have confirmed New Hampshire’s tax cut would be one of the first by any state in more than 40 years.

New Hampshire’s current cigarette tax of $1.78 is already by far the lowest in New England.

“Clearly there hasn’t been any cut in this tax anywhere in the recent history,” said John Dumais, president of the New Hampshire Retail Grocers.

Governor Lynch and the Democratic leaders that controlled NH over the last 4 years really did a number on the smokers in NH. Not only did they pass a partial public smoking ban, prevent medical marijuana and prevent decrim of marijuana, but they also decided to do something else.

But cigarette sales volume has dropped steadily as the Legislature and Gov. John Lynch have approved raising the tax four times in the past six years, said Donna O’Donoghue, executive director of the New England Convenience Store Association.

[Keith and stuff]

While the cigarette tax was cut 10 cents per pack in NH, it was increased 40 cents in CT and 38 cents in VT. Maybe more folks from CT and VT will go to NH to get smokes? Or maybe the same amount of folks will go more often. I predict it will be somewhere in between those two scenarios.

[libertybrewcity]

great comments and links. thanks

so they aren't allowed to cut taxes if it doesn't show it can raise revenue?

[Keith and stuff]

great comments and links. thanks

so they aren't allowed to cut taxes if it doesn't show it can raise revenue?

Good point. I may not have worded that very well.

My understanding is that taxes are cut in NH. However, if the tobacco tax cut hasn't proven to increase revenue in two years, it will end and the old tax rate will go into effect. Of course, that's just the plan now as some people understand it. It's going to depend on who's in charge in 2 years when the next state budget is being made.

[Keith and stuff]

I don't think I've talked about this issue enough. AFAIK, this is the only time that the tobacco tax has been reduced by a state government. Maybe I'm wrong and it has happened once before.

http://www.pittsburghlive.com/x/pitt.../s_753640.html

That explains why only Vermont and Connecticut this year opted to raise cig taxes, reports Caroline May of The Daily Caller. One state, New Hampshire, has passed a tobacco tax cut while Rhode Island and New Jersey have similar legislation pending.

This is a pretty big deal folks. I was in Boston at the MassCann / NORML Freedom Rally, which I've been told is the 2nd largest such rally in the US ( http://dispensary-business-news.com/...ization-party/ )on Saturday. I saw many Ron Paul supporters in the crowd. When smokers came up to the FSP table I explained to them how we are already making progress in NH. How NH was one of two states in modern history to cut spending when it did so this year and how NH did it by a larger amount than has even been done before in modern history. I also mentioned how NH cut the tobacco tax, something that hasn't been done before in modern history in the US.