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Cigarette and Tobacco Products Tax Essentials

There is a long history in the United States of using legal means to deter certain behaviors. In some cases, we’ve tried to reduce certain behaviors we regard as “sinful” by banning them altogether; this was done during the so-called “Prohibition Era” when alcohol consumption was rendered illegal by a constitutional amendment. More commonly, we’ve used taxation as a means to reduce, or at least profit from, sinful behaviors, or behaviors which have a well-known adverse impact on one’s health. The Cigarette and Tobacco Products Tax in New York State is one example of a tax which was created to generate additional money for the public, while also curtailing harmful behavior. In this post, we will go over the rate structure for this tax and discuss its current impact and future trajectory.  

Two Separate Rate Structures 

The tax on cigarette and tobacco products in New York State has two separate rate systems – one for cigarettes and one for tobacco products. Both New York State and New York City place an excise tax on cigarettes; the State tax rate is $4.35 per pack of 20 cigarettes, and the local City tax rate is $1.50 per pack of 20 cigarettes. Hence, if someone were to purchase a pack of 20 cigarettes in New York City, that person would incur a combined excise tax of $5.85.  

This excise tax on cigarettes is paid in addition to a prepaid sales tax. The prepaid sales tax is paid at the same time the tax stamps are purchased from the New York State Department of Taxation and Finance. Tax stamps are used to provide evidence that the excise tax on the cigarettes was paid. Both the excise tax and prepaid sales tax are then absorbed by wholesalers and retailers.  

The excise tax on tobacco products operates a bit differently. All tobacco products possessed in New York State are taxed in the following manner: 75%  of the wholesale price on cigars and tobacco products, other than miniature cigars and snuff, $4.35 per 20 miniature cigars, $2 per container of snuff with up to one ounce of product, and $2 per ounce of snuff plus a proportionate rate for any amount over one ounce. This excise tax on tobacco products is paid by the distributors when the products are imported to the State of New York. 

Businesses which sell cigarettes or other tobacco products must register as an official seller with the State.  

Present & Future for the Cigarette and Tobacco Products Tax 

Though the excise taxes on cigarettes and tobacco products have generated substantial sums for New York State, there’s evidence to support the idea that the State may be able to generate even larger sums with lower rates. There’s also some doubt as to whether these taxes have actually deterred tobacco consumption to any meaningful degree. In 2015, for instance, it’s estimated that over 50% of all cigarettes consumed in New York were smuggled into the State so as to avoid the heavy excise taxes. Accordingly, there’s an argument to be made that lowering the tax rates may end up leading to even greater revenue, since it would also decrease the incentive to smuggle cigarettes and tobacco products into the State. Some commentators have even proposed eliminating the tax altogether, given its unpredictable consequences. 

Whatever its future, the Cigarettes and Tobacco Products Tax in New York is clearly a force to be reckoned with, at least in the short-term. Businesses which intend to sell such products need to consider the impact that this tax will have on sales. If you’re impacted by the Cigarette and Tobacco Products Tax, it may be helpful to contact a qualified New York tax attorney to learn more. Also, don’t hesitate to call an attorney at Mackay, Caswell & Callahan, P.C. , or contact us online, if you’re looking for assistance in this area. 

Image credit: Alejandro Mallea