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.
