California Raises Tobacco Taxes...Again

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Posted by Sheridan Nolen on Monday, May 24th, 2021, 2:00 PM PERMALINK

Unfortunately for taxpayers in the Golden State, the California Department of Tax and Fee Administration (CDTFA) has decided to unilaterally increase the state’s tobacco tax by a whopping 11.5%. Each year, the CDTFA must reevaluate its tax rate for “Other Tobacco Products” (OTP). OTPs include pipe tobacco, cigars, and snuff. This new tax will go into effect July 1 of this year and will be re-evaluated and likely raised again by June 30, 2022. 

This tax hike on OTPs will continue to disproportionally harm California’s most vulnerable populations. Data has demonstrated that tobacco tax increases have no statistically significant impact on smoking prevalence among those with household incomes of less than $25,000, and 72% of smokers come from low-income communities. Californians have already suffered incredible hardships due to the harsh, job-killing restrictions imposed on them by Democrats in Sacramento. This tax hike will further perpetuate financial stress on individuals who are already struggling to make ends meet.   

Increased taxes on cigarettes and other tobacco products consistently result in lower than projected revenues. For example, when nearby Utah raised its tobacco tax, smuggled cigarettes doubled to over 20% of the market. In New York, smuggling has reached over 50% – and California is not far behind at 47.7%  market share. As a result of these alternate unregulated markets, only three out of the 32 state tobacco tax increases studied met tax revenue estimates.  

These tax hikes promote black markets for smuggled tobacco products. Most tobacco smuggling operations are run by multi-million-dollar organized crime syndicates who also engage in human trafficking and money laundering. In addition, profits from smuggling have been used to fund terrorist activity. The US State Department has explicitly called tobacco smuggling a “threat to national security.”  

California is already one of the most highly taxed states in the nation, ranking 49th in the Tax Foundation’s 2021 Business Tax Climate Index. In addition to its harsh business tax climate, imposing regressive taxes - such as a tobacco tax hike - will only make the Golden State a less attractive place to live and will continue to drive businesses and families out of the state for better opportunities. The CDTFA must recognize this and begin implementing policies that will protect California taxpayers.   

Photo Credit: jjkbach

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