After Two Weeks of Uncertainty, New Hampshire Cigarette Tax Goes Up 25 Cents

October 16, 2008

New Hampshire’s Department of Revenue Administration confirmed yesterday that the state’s cigarette tax is going up 25 cents to $1.33 per pack, effective immediately. Many retailers have still not received word of the announcement, which was made after the department determined that the existing $1.08 tax had not raised at least $50 million between July 1 and October 1.

On July 1, neighboring Massachusetts raised its cigarette tax to $2.51 per pack, and New Hampshire retailers convinced the state to hold off on their increase in hopes that cross-border sales would hike tax revenues. The state agreed, but only if the tax could raise an extra $50 million between July 1 and October 1. Otherwise, the tax would go up.

The state’s position is problematic, since a tax on cigarettes can only be justified as a way of reimbursing society for whatever costs users impose, not as a revenue-raising device, as David Brunori of Tax Analysts explained yesterday:

[T]hat’s not the way to decide whether excise taxes should be imposed. Excise taxes are justified only to compensate society for the external costs of using a product. There certainly are external costs to smoking. But neither New Hampshire nor the rest of the nation seems to tie cigarette taxes to those costs. That means the excise is a general revenue raiser. And that’s a violation of some well-thought-out tax principles.

Turns out the retailers might have actually coughed up the requisite $50 million in time, but the state wouldn’t accept a last minute $3 million wire transfer.

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