Location:
TAXES - CIGARETTE;
Scope:
Connecticut laws/regulations; Background;

OLR Research Report


November 4, 2010

 

2010-R-0407

OLR BACKGROUNDER: CIGARETTE TAXATION IN CONNECTICUT AND NEARBY STATES

By: Susan Price, Senior Attorney

States began looking toward cigarette taxation as a revenue source in 1921, when Iowa imposed the first such tax. Now all states have done so; it ranges from 17 cents per pack in Missouri to $4.35 in New York. It has been designated a “sin tax”, with proponents asserting that increasing the tax will raise the price of cigarettes, thereby discouraging people from beginning, or continuing, to smoke. Connecticut's first tax was enacted in 1935. Over the years, it has steadily increased from two cents (one mill) to its current rate of $3.00 (150 mills) per pack.

In FY 10, Connecticut received more than $380 million in cigarette tax revenue (Department of Revenue Services, Monthly Comparative Statement of Tax Revenue June 2010/June 2009). The Office of Policy and Management and legislature's Office of Fiscal Analysis are projecting that FY 11 revenue will rise to $402.5 million before gradually falling in the three subsequent fiscal years to $370.3 million in FY 14 (October 15, 2010 Consensus Revenue Estimates).

This report describes (1) how the cigarette tax works in Connecticut, (2) its history, and (3) how the state's tax rate compares with nearby states.

HOW THE TAX WORKS IN CONNECTICUT

Cigarettes, Distributors, and Dealers

Unlike the sales tax, which is collected from purchasers at the point of sale, the cigarette tax is levied on distributers and dealers. However, the tax payments are passed through to the ultimate retail purchaser as part of the price of the cigarette pack.

The law broadly defines cigarettes as:

any roll for smoking made wholly or in part of tobacco, irrespective of the size or shape and irrespective of whether the tobacco is flavored, adulterated or mixed with any other ingredient, where such roll has a wrapper or cover made of paper or any other material, except where such wrapper is wholly or in the greater part made of tobacco and such roll weighs over three pounds per thousand, provided, if any roll for smoking has a wrapper made of homogenized tobacco or natural leaf tobacco, and the roll is a cigarette size so that it weighs three pounds or less per thousand, such roll is a cigarette and subject to the tax (CGS 12-285(9)(b)(1)).

A distributor is anyone who:

1. is an in-state manufacturer,

2. buys cigarettes at wholesale and sells at least 75% of them to licensed dealers,

3. operates at least five retail stores where cigarettes are sold,

4. has 25 or more cigarette vending machines and buys cigarettes at wholesale,

5. imports unstamped cigarettes and sells at least 75% to others for resale, or

6. operates a Connecticut storage facility for unstamped cigarettes ( 12-285(a)(2)).

A dealer is anyone, other than a distributor, who sells cigarettes at retail in Connecticut, including those operating fewer than 25 vending machines ( 12-285(a)(5)).

Tax Stamps

Cigarette distributors and dealers pay the tax by buying tax stamps from the Department of Revenue Services. They must affix a stamp to each cigarette pack as proof of payment. Distributors get a 1% discount on stamps; dealers must pay face value. With a few exceptions, it is illegal to sell, offer for sale, or possess unstamped cigarettes in the state. (Stamped packages put up for sale must also comply with federal labeling and tax laws.) The tax is currently $3.00 for a 20-cigarette pack ( 12-296).

Exemptions

The tax does not apply to (1) cigarettes sold to state facilities other than prisons or (2) use or storage of up to 200 cigarettes brought into the state by a traveler (i.e., on his or her person or in baggage) ( 12-320).

Penalties

The cigarette law imposes various penalties on those who violate its provisions. Table 1 lists tax-related violations and penalties.

Table 1: Tax Violations and Penalties

Violation

Penalty

Dealer selling more than 20,000 unstamped cigarettes 12-304

Confiscation of cigarettes; a fine of up to $5,000, imprisonment for up to one year, or both

Transporting unstamped cigarettes with intent to avoid tax 12-305

Confiscation of the vehicle and any personal property associated with the unlawful activity

Possession of unstamped cigarettes by a person other than a distributor, dealer, or shipper 12-316

$3.00 per pack, including those unaccounted for when there is a discrepancy between the quantity delivered and what remains in the holder's possession

Willfully failing to pay the tax or file required report 12-306b

Fine of up to $1,000, imprisonment for up to one year, or both

Willfully providing fraudulent or false documentation 12-306b

Fine of up to $5,000, imprisonment for between one and five years, or both

Affixing or selling counterfeit stamp

12-308

Fine of up to $5,000, imprisonment for between one and 10 years, or both

Failure of transporter to keep invoice with cigarette shipment 12-306a

Fine of up to $1,000, imprisonment for up to one year, or both

HISTORY OF CONNECTICUT'S CIGARETTE TAX RATES

As already mentioned, Connecticut enacted its first cigarette tax in 1935. Since then, the tax has increased 18 times, including four times in the past eight years. Table 2 shows the rate of increase in Connecticut tax rates from 1935 to the present.

Table 2: Connecticut Cigarette Tax Increases 1935 – 2009

Year and Citation

Rate Per Pack of 20

Comment

1935

( 468c)

2 cents

Expired in 1939

1945

( 301h)

3 cents

1/3 goes to Soldiers, Sailors, and Marines Fund until its principal reaches $15 million

1961

(PA 604 6)

5 cents

 

1963

(PA 653 3)

6 cents

Eliminates allocation to Soldiers Sailors and Marines Fund

1965

(PA 326 1 (Feb. SS))

8 cents

 

1969

(PA 608 1)

15 cents

Increase set to expire 6/30/71

1969

(PA 1 44)

16 cents

Same expiration date

1971

(PA 5 114 (June SS))

16 cents

Expiration date extended 2 years

1971

(PA 8-325 (June SS))

21 cents

 

1983

(PA 83-1 (June SS))

26 cents

 

1989

(PA 89-16 4)

40 cents

 

1991

(PA 91-3 131 (June SS))

45 cents

 

1993

(PA 93-74 4)

47 cents

 

1993

(PA 93-74 14)

50 cents

 

2002

(PA 02-1 1)

$1.11

 

2003

(PA 03-2 29)

$1.51

 

2007

(PA 07-1 124)

$2.00

 

2009

(PA 09-3 104 (June SS))

$3.00

 

CIGARETTE TAX RATES IN NEARBY STATES

Connecticut's cigarette tax is fourth highest in the nation and third highest among northeastern states. Table 3 shows current rates in eight northeastern states; they range from $1.78 per pack in New Hampshire to $4.35 in New York. The rates shown below do not include the federal excise tax ($1.01 per pack) or applicable state sales taxes (6% in Connecticut).

Table 3: Cigarette Tax Rates in Connecticut and Nearby States: 2010

State

Tax

(Dollars Per 20-Cigarette Pack)

New York

$4.35

Rhode Island

$3.46

Connecticut

$3.00

New Jersey

$2.70

Massachusetts

$2.51

Vermont

$2.24

Maine

$2.00

New Hampshire

$1.78

Source: National Conference of State Legislatures

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