WASHNGTON, D.C. — While no tax hikes are set in stone, a proposal to increase the federal excise tax for tobacco products could have a dramatic impact at retail.

The Tobacco Tax Equity Act of 2021 would close tax code loopholes for tobacco products by increasing the federal tax rate on cigarettes, pegging it to inflation and setting the federal tax rate for all other tobacco products at this same level. It is part of the federal $3.5-trillion reconciliation package.

According to the Tax Foundation, the federal proposal would have significant implications on the availability of non-cigarette tobacco products and call for a potential federal increase of more than 1,600 percent on moist snuff — a hike that could result in state taxes and retail prices increasing by more than 50 percent in certain states.

Notably, Massachusetts tobacco consumers would pay more than $20 for a can of moist snuff, said the Washington, D.C.-based nonprofit.

Tobacco products are taxed at the federal and state levels — and sometimes at the municipal level as well. As the Tax Foundation explained, every state taxes cigarettes by quantity, but a majority tax other tobacco products (OTP) by price. When states tax tobacco products by price, the tax on the product will pyramid since the federal tax is levied at the manufacturer level and the state tax is levied at distribution level. In effect, the state tax base includes the federal tax and becomes a tax on a tax.

If the federal government increases the tax on dipping tobacco by more than 1,600 percent, all states experience price increases in excess of 25 percent, but state tax burdens increase by more than 50 percent where OTP taxes are based on price, said Ulrik Boesen, senior policy analyst, Excise Taxes, at the Tax Foundation.

As a result, there would be 15 states where the cost of a 1.2-ounce can of moist snuff would rise above $10. In Massachusetts, that cost would rise above $20, he added.

Source: Cs News