Budget: Tobacco Taxes

On January 17, Governor Cuomo presented his proposed state budget for the fiscal year that begins April 1, 2012. “There are no new or increased taxes or fees,” he declared. He then proposed two changes in tobacco taxes designed to yield $18 million in increased revenue. While they sound like tax increases, Mr. Cuomo insisted they are “loophole closing actions.”

Cigar Tax.  This proposal would replace the current cigar tax with a new two-tier tax that he said “is not anticipated to have an impact on the retail price of cigars.” Starting July 1, he proposes to tax cigars at 50% of retail value instead of 75% of wholesale value, with distributors pre-paying a portion of that tax (20 cents per cigar) and the retailer remitting the balance (another tax reconciliation for retailers to do each month!). If enacted, this change would be effective July 1, 2012. To facilitate the transition, there would be a one-month cigar excise tax holiday for the entire month of June 2012 to allow a sell-through of cigars taxed under the old formula.The impetus for this change was not clear from the budget message, leaving many in the cigar trade puzzled.

Loose Tobacco.   Governor Cuomo seeks to pop the roll-your-own cigarette bubble by taxing all loose tobacco at a rate equivalent to the cigarette excise tax. “The inconsistent treatment of tobacco taxation has allowed certain retailers to obtain an unfair advantage of lower costs by providing loose tobacco, paper, and machines so customers can roll their own cigarettes at a much lower cost than manufactured cigarettes,” he said. To curb this activity, he wants to change the state tax rate on loose tobacco from 75% of the wholesale price to $4.53 per ounce, which he said equates to the per-ounce rate on finished cigarettes.

Here’s a comparison of existing and proposed NYS tobacco excise taxes: