South Dakota Lights Up Revenue Uncertainty with Proposed Tobacco Tax Hike

June 23, 2017

South Dakota voters may soon decide whether to increase the state’s tax on tobacco. Rep. Mark Mickelson (R) is trying to get two questions on the ballot that would raise the state’s tax on cigarettes and other tobacco products to raise additional revenue for the general fund, tobacco prevention programs, and technical school funding.

Currently, South Dakota has two separate taxes: one for cigarettes, one for other tobacco products. Cigarettes are taxed at a rate of 76.5 mills per cigarette, so the average 20-cigarette pack is subject to $1.53 in taxes. Other tobacco products are taxed 35 percent of the wholesale price.

Mickelson would give the voters three choices: two different rate increases, or of course the option of rejecting both. His two proposals would raise the cigarette tax to 101.5 mills per cigarette ($2.03 a pack) or 126.5 mills per cigarette ($2.53 a pack). The tax on other tobacco products would rise to 45 percent or 55 percent.

Currently, South Dakota’s cigarette rate is slightly below the national average of $1.68 per pack, but higher than four of its six bordering states.  

The higher of the two new rates would move South Dakota from having the nation’s 26th highest tax to the 12th highest. This rate hike could result in increased cigarette smuggling, an issue impacting many states with high taxes on tobacco. As it stands now, South Dakota has the 17th highest proportion of smuggled cigarettes. If South Dakota were to increase tobacco taxes even further, smuggling could increase, creating even more revenue instability.

South Dakota last raised tobacco taxes in 2006. After an initial spike in revenue, revenue collection began to decrease. Even without higher cigarette taxes, fewer and fewer Americans smoke regularly, and higher taxes may speed up this trend. While this may be favored as a public health goal, it also makes for an unstable revenue stream. This is particularly important when a significant portion of the revenue is dedicated to continuing expenditures like technical school funding, or intended to help meet general fund needs.

Supporters of these proposed ballot questions will need at least 13,871 signatures to get them on the ballot.


Related Articles