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The original version of this article has been updated to reflect the Oklahoma Supreme Court's August 10, 2017, opinion that the cigarette fee is unconstitutional, because it is a tax

According to
Fair Reporters, the average price for a pack of cigarettes in the U.S. is $7.04. New York has the highest cost per pack at $12.85, and Virginia has the lowest, at just $5.25.

As for taxes, a Tax Foundation piece reveals that the average state tax rate is $1.68 per pack. New York has the highest tax per pack, at $4.35, and Missouri’s $0.17 tax per pack is the lowest.

It is easy to blame the high cost of cigarettes on the taxes, but such a tidy conclusion would be erroneous in some states. For instance, as the table below shows, nearly half of California’s price per pack is taxes, but the total cost per pack only puts it at number 36. On the other hand, Illinois has the second highest cost per pack, but is ranked at number 35 when considering the tax as a percentage of total cost. Similarly, Alaska has the fourth highest cost, but is number 32 for the latter measure.

Here is a look at the total cost of a pack of cigarettes, the tax, and tax as a percentage of cost, in the top and bottom 15 states: 

Top 15 states, ranked by tax as a % of total pack cost

Price per pack

Tax per pack

Tax as a % of total pack cost

Rank by tax as a % of total pack cost

Rank by price per pack

California

$5.89

$2.87

49%

1

36

Rhode Island

$8.95

$3.75

42%

2

9

Connecticut

$9.52

$3.90

41%

3

7

Pennsylvania

$6.85

$2.60

38%

4

20

Minnesota

$8.10

$3.04

38%

5

12

Massachusetts

$9.95

$3.51

35%

6

3

New York

$12.85

$4.35

34%

7

1

Hawaii

$9.55

$3.20

34%

8

6

New Jersey

$8.20

$2.70

33%

9

11

Washington

$9.30

$3.03

33%

10

8

Vermont

$9.62

$3.08

32%

11

5

Washington DC

$7.99

$2.50

31%

12

15

Nevada

$6.15

$1.80

29%

13

31

Wisconsin

$8.82

$2.52

29%

14

10

Maine

$7.37

$2.00

27%

15

18


Bottom 15 states, ranked by tax as a % of total pack cost

Price per pack

Tax per pack

Tax as a % of total pack cost

Rank by tax as a % of total pack cost

Rank by price per pack

Illinois

$11.50

$1.98

17%

35

2

Indiana

$5.97

$1.00

17%

36

35

Oklahoma

$6.29

$1.03

16%

37

29

Colorado

$5.65

$0.84

15%

38

40

Alabama

$5.51

$0.68

12%

39

41

Tennessee

$5.30

$0.62

12%

40

49

Kentucky

$5.40

$0.60

11%

41

47

Wyoming

$5.41

$0.60

11%

42

46

Mississippi

$6.34

$0.68

11%

43

26

Idaho

$5.41

$0.57

11%

44

45

Nebraska

$6.23

$0.64

10%

45

30

South Carolina

$5.85

$0.57

10%

46

37

North Carolina

$5.45

$0.45

8%

47

42

North Dakota

$5.33

$0.44

8%

48

48

Georgia

$6.39

$0.37

6%

49

24

Virginia

$5.25

$0.30

6%

50

51

Missouri

$5.25

$0.17

3%

51

50


In these rankings, Oklahoma falls somewhere below the middle with respect to price per pack, and tax as a percentage of total pack cost, but this may change soon. Lawmakers recently passed a new law that adds a $1.50 “fee” to the price of one pack. Assuming it would behave like a tax, the extra $1.50 would launch Oklahoma much closer to the top of both lists, to number 16 when ranked by price per pack, and to number 11 when ranked by tax as a percentage of total pack cost.

Some claim the fee is purposed solely in boosting Oklahoma’s ailing financial outlook, but this is the kind of strategy that the Tax Foundation characterizes as wrongheaded: “[c]igarette taxes are sometimes touted as a fix for large, structural problems when states face revenue shortfalls. However, cigarette tax revenue is declining as fewer Americans smoke, meaning cigarette tax revenue is not a reliable funding source for important policy priorities.” 

This may be why so few states have enacted legislation this year on this subject. In an Aug. 9, 2017 article, CSPDailyNews.com, a magazine serving the convenience store market, noted that although 22 state legislatures considered raising cigarette taxes in 2017, only two – Delaware and Rhode Island – actually did.

Oklahoma’s cigarette fee legislation

Oklahoma’s add-on did not count, because the state called the $1.50 tariff per pack a “fee” in the legislation, SB 845. According to the bill summary, the fee is expected to generate approximately $258 million in fiscal year 2018, with the majority going to the newly created Health Care Enhancement Fund. The measure includes provisions to prevent Oklahomans from smoking cigarettes, to encourage smoking cessation, and enhance enforcement of the prohibitions of providing cigarettes to minors. The irony is that if enough Okies stop smoking, the Tax Foundation’s prediction will come true soon enough, and Oklahoma’s fiscal situation will remain as dire as ever. This phenomenon is occurring in the context of taxes on sugar filled beverage, as we explained last week.

Indeed, although the bill summary states that an objective of SB 845 is to reduce health-related costs to individuals and to the state, many have criticized it, asserting that the “cigarette fee [is] not dedicated to health care.” They claim this is so because the legislature has the discretion to apportion money out of the  Health Care Enhancement Fund. In fact, the language in the bill says that the legislature may appropriate the funds “for the purpose of enhancing the health of Oklahomans.”

The Sooner State had a “challenging” budget session this year. Gov. Mary Fallin conceded as much in a press release announcing that she was facing down a $900 million budget gap, which was not much better than last year’s of $1.3 billion, the largest in Oklahoma’s history.  She suggested that “prevent[ing] draconian cuts to critical services and kept government from shutting down” was about the best that lawmakers could do. The new cigarette fee would solve less than a third of that $900 million problem.

Whether actually motivated by the desire to curb smoking addiction or to raise revenue, the fee mechanism is a curious one. Nearly immediately after Gov. Fallin signed the act into law, on May 31, 2017, a group of petitioners, including the R.J. Reynolds Tobacco Company, sued the state, Gov. Fallin, and others, asking the court to “invalidate a tax that flagrantly violates” the state constitution.

The litigation

Among other things, the petitioners in the case cite portions of the constitution that prohibit the passage of any revenue raising measures unless they:

  1. Originate in the house
  2. Are passed before the last five days of the legislative session
  3. Are approved by either a seventy-five percent supermajority of legislators, or a majority of voters in a referendum

In fact, the cigarette fee satisfies none of these conditions; it originated in the Senate, and passed on the last day of the legislative session, May 26, 2017, by a vote of 51 to 43. 

The petition also points out that during the most recent legislative session, lawmakers made several unsuccessful attempts to pass a cigarette tax, resulting in the emergence of SB 845 “phoenix-like from the ashes of these four failed bills.” Thus, because it “walks, talks, and acts just like an excise tax,” upholding it would “eviscerate constitutional limits on new taxes.”

In late July, a number of interested parties filed amicus briefs in the case, including the National Association Of Manufactures, in support of the petitioners, and the Thee Oklahoma State Medical Association and Campaign For Tobacco-Free Kids, in support of the state. 

In an Aug. 10, 2017, opinion that has not yet been released for publication, the Oklahoma Supreme Court indeed held that the fee is unconstitutional, because it is a tax: “Applying the test we have utilized since 1908, we conclude that the primary purpose of [the cigarette fee legislation] is to raise new revenue for the support of state government through the assessment of a new $1.50 excise tax on cigarettes and that, in doing so, SB 845 levies a tax in the strict sense. As such, [the fee is] unconstitutional.”

The court found the legislative context underlying the measure to be noteworthy. In particular, it pointed to failed efforts to pass a cigarette assessment pursuant to budget negotiations, during which time the “Legislature's stated purpose shifted from raising revenue to reducing the incidence of smoking. There were no committee hearings held, no testimony taken, and no evidence received by the Legislature in that timeframe that would explain the sudden shift in purpose.  What is apparent is that by May 26, with the end of the legislative session looming, the legislature had not yet fulfilled its constitutionally-mandated duty to enact a balanced budget.”

The court’s analysis included application of the two-part test it set forth in the above-mentioned 1908 case, Anderson v. Ritterbusch. Anderson held that revenue raising bills are those whose 1) principal object is the raising of revenue; and 2) which “levy taxes in the strict sense of the word.” Declared the court: “In evaluating a measure's purpose, we are careful not to elevate form over function. Thus, we look to ‘what the legislation actually accomplishes . . . and not [to] what a legislature states it is accomplishing.’”

On this rationale, Oklahoma’s high court was not persuaded that SB 845’s purpose was to reduce the incidence of smoking, despite the bill’s text. Nor did it accept the state’s contention that the revenues were for the regulatory use of offsetting the financial burdens that smoking imposes on it, emphasizing the bill achieves that regulatory purpose “through revenue raising.”

Additionally, the court looked to whether SB 845  "levies a tax in the strict sense.”  Upon examination of the “true nature and effect of this ‘smoking cessation fee’ to determine whether it is truly a fee, or merely a disguised excise tax,” the court laid bare its skepticism: “If this quintessential excise tax can be transformed into a fee merely by calling it a fee and adding some regulatory gloss…,” then the constitution’s promise to enact taxes only under specific conditions, either a vote by the people or a vote of three-fourths of the majority in both houses, “will have been illusory.”

For these reasons, the court determined that the cigarette fee violates the Oklahoma constitution and is therefore invalid.  

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