As part of his $152.3 billion state budget proposal for 2017, New York Governor Andrew Cuomo wants to replace the current large cigar tax rate with a 45-cent flat tax on every large cigar sold in The Empire State, from midtown Manhattan to Niagara Falls.
While this would be bad news for machine-made smokes (which typically sell for $1 apiece or lower), it's good news for premium cigars, because a 45-cent flat tax on each cigar would be considerably less than what New York State tobacconists are currently paying in excise tax for premium smokes.
Though the official tax rate for cigars in New York State is 75 percent of the wholesale price, an "adjustment ratio" clause enacted in 2013 gives retailers the option to calculate the wholesale price, which amounts to an effective 28.5 percent tax rate using the "adjustment ratio" formula.
Under current taxes, a $10 cigar with a $5 wholesale price would have a $1.40 excise tax. Should Cuomo's budget pass, that will be knocked down to only 45 cents.
By comparison, a $1 cigar with a 50-cent wholesale price has an excise tax of 14 cents at the current rate. In this case, a 45-cent flat tax would be quite an increase.
"The Executive Budget replaces the current distributor level percentage tax on large cigars with a 45 cent per cigar flat tax," confirmed Morris Peters, spokesman for the New York State Department of Budget in an email to Cigar Aficionado. "The current tax structure, which is the result of litigation, has resulted in revenue losses."
Cuomo aims to get the budget approved before April 1, which is the start of the new state fiscal year.