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Cigarette Tax Increase Boosts State's Revenue

$1-A-Pack Hike Brings In More Than Expected

Jesse Leavenworth

September 06, 2010

The state has collected more money than expected from the $1-a-pack tax hike on cigarettes that started in October. At the same time, Connecticut merchants are selling fewer cigarettes.

The state Office of Policy and Management predicted that the tax would raise an additional $99.3 million in the 2009-10 fiscal year. Actual revenue exceeded that prediction by $5 million, agency spokesman Jeffrey R. Beckham said. Total revenue in that fiscal year from state cigarette taxes — now $3 a pack — was about $380 million, Beckham said.

The OPM also had predicted that if no tax increase had been imposed, merchants would sell about 115 million packs between Oct. 1, 2009, and June 30, 2010. The actual number of packs sold in that period was about 108 million, Beckham said.

Whether merchants would have sold more cigarettes without the tax hike, "we cannot say for sure with the data at hand," Beckham said, but the tax boost did drive an increase in overall revenue.

Alan Schoenfeld, president of a wholesale company that sells cigarettes to stores throughout the state, said that he finds the OPM numbers hard to believe. Sales at Manchester Tobacco & Candy Co. are down 10 percent, Schoenfeld said.

But the Campaign for Tobacco-Free Kids, a Washington, D.C.-based nonprofit agency, reports that significant hikes in state cigarette taxes always bring more revenue.

"Every single state that has raised its cigarette tax rate has subsequently received more tax revenue than they would have received without a rate increase, despite the fact that cigarette tax increases reduce state smoking levels and despite any related increases in cigarette smuggling or tax evasion," according to a report on the organization's website — http://www.tobaccofreekids.org. "Put simply, the increased tax per pack brings in more new state revenue than is lost from the related reductions in the number of packs sold and taxed in the state."

Connecticut now has the fourth-highest state cigarette excise tax in the nation, behind New York state at $4.35 a pack, Rhode Island at $3.46 and Washington state at $3.025, according to the National Conference of State Legislatures [www.ncsl.org]. Missouri's tax, at 17 cents a pack, is the lowest in the nation.

For the current fiscal year, the Connecticut OPM predicted that the state would raise an additional $117.6 million from cigarette taxes, and that forecast is still on track, Beckham said.

These higher revenues will fall as smoking levels shrink, according to Tobacco-Free Kids, "but the revenue levels will remain much higher than they would have been without the rate increase."

In Connecticut, figures for the past five fiscal years show that cigarette sales have steadily declined — from 177,205,439 packs in fiscal year 2005-06 to 141,707,128 packs in the 2009-10 fiscal year.

The most significant declines occurred after the federal government raised its per-pack tax from 39 cents to $1.01 in April 2009 and the state hiked its tax from $2 to $3 last October. The most recent statistics from the state Department of Health show that about 17 percent of adults in the state smoke cigarettes — 18.9 percent of men and 15.2 percent of women. About one in four high school students in the state is a smoker. From 1998 to 2006, smoking rates decreased slightly and were generally lower than the national average, according to department figures.

Connecticut smokers cannot get much cheaper cigarettes in any of the bordering states [Massachusetts' cigarette tax is $2.51 a pack]. This year, cigarette sales in Maine rose for the first time in more than 20 years, driven in part by a cigarette tax hike in neighboring New Hampshire. The tax in New Hampshire is now $1.78 a pack; in Maine, it's $2. According to an Associated Press story in August, many Maine smokers decided not to cross the state line for such a small savings.

Schoenfeld said he does not believe that the decline in cigarette sales in Connecticut means that fewer people are smoking. Many smokers, he said, are rolling their own or buying cheaper cigarettes from merchants in states with low taxes.

But buying cigarettes over the Internet to evade taxes is illegal, state Attorney General Richard Blumenthal said in a prepared statement, "and my office will continue to work in cooperation with the state Department of Revenue Services or the state Department of Public Health to halt this practice."

"We have not received any complaints or requests for enforcement action," Blumenthal said.

The U.S. government has made shipping cigarettes throughout the nation much more difficult. A law passed this year — the Prevent All Cigarette Trafficking Act — requires organizations selling cigarettes online to pay all federal, state, local or tribal tobacco taxes and to affix tax stamps before delivery. Since sellers must verify that purchasers are of legal age, cigarettes cannot be delivered through the U.S. mail, but only by express mail. The law has been a huge blow to the Seneca Indians in New York state, who controlled up to 80 percent of the nation's mail-order cigarette market, according to published reports.

In any case, Connecticut smokers will continue to seek out cheaper alternatives to state-stamped cigarettes, Schoenfeld said, and the state eventually will deplete its own tax coffers through misguided tax hikes.

"They're gonna kill the golden goose," he said. "People are not stopping smoking, just like they're not stopping drinking."