Arkansas House approves cigarette tax increase

The Arkansas House of Representatives passed at about 2:15 p.m. today (Feb. 5) a cigarette tax increase of 56 cents per pack. The vote was 75-24, with 75 votes need to approve the sales tax on cigarettes.

The bill — HB 1204 — now goes to the Senate, where approval there is expected. State Rep. Greg Reep, D-Warren, carried the bill through the House on behalf of Gov. Mike Beebe. Rep. Frank Glidewell, R-Barling, spoke against the bill during the debate prior to the vote.

If approved by the Senate, the tax on cigarettes purchased in Arkansas will equal $1.15 per pack. The new tax rate is estimated to generate about $86 million annually, with the money to be used primarily for health care programs like a statewide trauma system, community health centers and a satellite campus in Northwest Arkansas for the University of Arkansas for Medical Sciences.

However, it remains to be seen if higher cigarette prices will dampen sales enough to lower expected tax collections.

The U.S. Senate recently passed legislation to expand the State Children’s Health Insurance Program (SCHIP), which will be funded by a 61 cent per pack increase in the federal cigarette excise tax. If signed into law, the new federal tax on a pack of cigarettes will be $1.

Fitch Ratings followed the U.S. Senate vote with a report that it expects the federal tax to reduce cigarette sales by as much as 7%.

“While tobacco products are relatively price inelastic, they are not perfectly inelastic,” noted Fitch’s Senior Director Wesley E. Moultrie II. “As a result, near-term revenue and operating income growth (for cigarette companies) may be negatively impacted, leading to weaker credit measures.”

Fitch also noted in the statement: “With cigarette volumes decreasing as a result of the increase in the federal cigarette excise tax, state cigarette excise tax revenues will consequently fall. A number of states have dedicated programs funded by their own cigarette excise taxes meaning states will have to cut their dedicated programs or increase their state cigarette excise taxes.”

The highest tax on a pack of cigarettes is found in Hawaii, where a $2 increase on Sept. 30 boosted that state’s tax to $3.80 per pack. New Jersey comes in second with a $2.57.5 tax on each pack, and Rhode Island is third with a $2.46 per pack tax.

South Carolina has the lowest tax at 7 cents per pack, according to the FTA info.

The tax rates in Arkansas’ neighboring states are:
Louisiana — 36 cents
Mississippi — 18 cents
Missouri — 17 cents
Oklahoma — $1.03
Tennessee — 62 cents
Texas — $1.41