42-Cent Tax on Tobacco Products OKd by State Board

A state board, acting to implement voter-passed Proposition 99, decided Wednesday to tax the wholesale cost of tobacco products other than cigarettes at about 42 cents on the dollar.

Consumers buying cigars, pipe tobacco, snuff and chewing tobacco at retail outlets will therefore pay at least 42 cents more per dollar of product, said E. V. Anderson, the State Board of Equalization’s administrator of excise taxes.

But Anderson said he could not determine just how much more consumers would pay since the tax will be imposed at the wholesale level before products are marked up for retail purchase.

Tobacco industry officials and board member Ernest Dronenburg argued in support of tax formulas that would have produced lower rates.

Board member Conway Collis argued in support of the rate that was later adopted, saying, “To do anything else would be a sham.” Proposition 99 proponents agreed.

25-Cent Increase in Tax

Proposition 99, approved by voters Nov. 8 and effective on Jan. 1, increased the cigarette tax per pack from 10 cents to 35 cents and called for a tax on other tobacco products equal to the overall rate at which cigarettes will be taxed.

However, it did not specify the amount of increase on other products, instead leaving the job of embracing a tax increase formula to the Board of Equalization.

Previously, there was no state tax on tobacco products other than cigarettes.

The board, in a 3-1 decision with Dronenburg dissenting, adopted a staff-proposed formula that officials said employed the tax rate on one cigarette, $.0175, divided by the average wholesale cost of a cigarette, $.042. That figures out to a tax rate of 41.67%, or about 42 cents per wholesale dollar.

The rate is roughly equivalent to the 35-cent per pack tax on distribution of cigarettes since the average wholesale cost of a pack of cigarettes is about 84 cents, officials said.

State officials estimate that the new tax on tobacco products other than cigarettes will generate less than 5% of the total tax revenue collected from all tobacco products.

If sales continue at today’s levels, Proposition 99 will raise about $600 million annually, officials said.

Funds will pay for anti-smoking programs in schools, medical care for the uninsured, tobacco-related medical research, reimbursement of doctors whose patients cannot pay their bills and wildlife protection.