As part of his 2013 fiscal budget to be proposed next week, Governor Deval Patrick (D) of Massachusetts will target soda, candy and cigarettes for additional revenue. According to a January 23 report by TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Analysts, (subscription required) soda and candy will be added to the state’s 6.25 percent sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. base, and the cigarette tax will increase by 50 cents, totaling $3.01 per pack. Though these “sin taxes” are the highlight of the proposal, Patrick’s budget would:
- “Apply the motel/hotel excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. to the full cost of a room, including the markup from internet resellers
- Change the calculation for corporate taxes so that Massachusetts companies that sell products out-of-state
- Change the tax treatment for subsidiaries of insurance companies that do not perform insurance-related business
- Make new investments in technology to better identify and collect uncollected and underreported taxes”
These changes are expected to generate $260 million in new revenue for fiscal year 2013.
If approved, the hike in cigarette prices would be the second during the governor’s tenure, and would vault cigarette excise tax rates in Massachusetts to fourth highest within 350 miles. This increase could make greater opportunities for peddlers of smuggled cigarettes, which already made up 22% of cigarettes consumed in Massachusetts in 2010.
Cigarette Excise Taxes within 350 miles of Massachusetts (as of July 1, 2011):
| State | Cigarette Tax (per 20-pack) | |
| 1 | New York | $4.35 |
| 2 | Rhode Island | $3.46 |
| 3 | Connecticut | $3.40 |
| 4 | Massachusetts (proposed) | $3.01 |
| 5 | New Jersey | $2.70 |
| 6 | Vermont | $2.62 |
| 7 | District of Columbia | $2.50 |
| 8 | Maine | $2.00 |
| 9 | Maryland | $2.00 |
| 10 | New Hampshire | $1.68 |
| 11 | Delaware | $1.60 |
| 12 | Pennsylvania | $1.60 |
| 13 | West Virginia | $0.55 |
| 14 | Virginia | $0.30 |
Many of the states in the area would have significantly lower prices. At a mere 30 cent tax per pack, even the 350 mile drive from Virginia doesn’t seem too bad if you’d like to make a quick profit. Of course, as with any other illegal trafficking, cigarette smuggling comes with a host of problems, and has even been linked to funding terrorism. Additionally, those selling cigarettes on the black market could very well be hooking the next generation of smokers. It seems unlikely that those selling smuggled cigarettes will check identification of their customers.
Follow Scott Drenkard on Twitter @ScottDrenkard.
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