Massachusetts Governor to Unveil 2013 Budget Proposals

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 Tax Analysts, (subscription required) soda and candy will be added to the state’s 6.25 percent sales tax 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 tax 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):

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.