Four State Ballot Measures Look to Raise Cigar Taxes

Four State Ballot Measures Look to Raise Cigar Taxes
Photo: hermosawave/iStock

Millions of Americans will flock to the polls on November 8 to decide the next president, the people who will occupy one of the 469 congressional seats up for grabs, and a host of other issues. Voters in four states—California, Colorado, North Dakota and Missouri—have an added responsibility: choosing whether or not to increase cigar taxes.

California is one of the largest cigar markets in the country, with a current cigar tax rate of 27.3 percent of the wholesale cost. The state is unusual because it bases its Other Tobacco Products (OTP) tax, which includes cigars, on the rate of taxation on cigarettes. Because of this, the proposed tax hike on the November ballot is significant.

Proposition 56 aims to increase the taxes on cigarettes and cigars in California. The ballot measure would raise the OTP tax to 69.2 percent, an increase of a little more than 153 percent of the current rate. Under current taxes, a $10 cigar (which sells for roughly $5 wholesale) would carry a state tobacco tax of $2.73. This proposed tax hike would make that tax jump to $6.92.

This is the second time in four years that a measure that seeks to raise tobacco taxes will be on the California ballot. In 2012, Golden State voters narrowly defeated an initiative that sought to raise the cigar tax rate by roughly 73 percent.

In Colorado, the tax rate on cigars is 40 percent of the manufacturer's suggested retail price. If Amendment 72 passes on Election Day, however, that rate will jump up to 62 percent on January 1. If Amendment 72 were to pass, it means that a $10 cigar that currently sells for $14 after applying states taxes (but not federal) would cost $16.20 next year.

Additionally, the ballot measure seeks to raise the tax on cigarettes by $1.75, bringing the total tax up to $2.59.

North Dakota's Initiated Statutory Measure 4 looks to boost the cigar tax rate by 100 percent. Currently, cigars are taxed at 28 percent of the wholesale price. Measure 4 includes language that would raise the rate to 56 percent of the wholesale price. Right now, a $10 cigar in North Dakota sells for $12.80 after applying state (but not federal) tax. This same cigar would sell for $15.60 if the measure were to pass.

If passed, Measure 4 would go into effect 30 days after the election, or December 8, 2016. The state estimates that Measure 4, which seeks to also raise the cigarette tax from 44 cents per pack to $2.20, would bring in approximately $170.4 million of additional tax revenue through June 30, 2019.

Unlike the other states, Missouri voters will actually see two tobacco-related tax measures on their ballots, Amendment 3 and Proposition A. The focus of Amendment 3 is not cigars, however, but cigarettes, as it seeks to raise the tax on a pack each year through 2020, at which point it will total 60 cents per pack.

Proposition A, however, looks to not only boost the cigarette tax, but also add an additional 5 percent sales tax to OTP products, which include cigars. The measure, if passed, would bring the state's sales tax on cigars to 15 percent. So a $10 cigar that costs $11 after applying the state sales tax (but not federal) would effectively cost consumers $11.50.

In the event that voters pass both Amendment 3 and Proposition A, it's unclear which one would actually become law. Normally, if two conflicting measures on the ballot both pass, the measure with the most votes becomes law. However, it's unclear if the two tobacco tax measures are against each other. According to the Missouri Attorney General's office, "Whether the two tobacco tax propositions are actually in conflict, is a question that would likely be addressed by the courts after the election, if both measures pass."

While only voters can decide the fate of the above ballot measures, this hasn't stopped pro-cigar organizations such as the Cigar Rights of America from getting the word out to cigar enthusiasts.

"Because it's a referendum, it changes how we do [the campaign]," said Glynn Loope, executive director of the CRA. "In each state, we are working with tobacconists to spread the word."

Loope's organization has been sending email notifications to its members, which include both consumers and tobacco shop owners, to help raise awareness. He said the CRA will continue to send notifications every three days leading up to the election. In addition, the CRA is distributing leaflets for tobacconists to post near their points of sale to inform customers to vote against each of the measures. Loope added that cigar consumers need to help spread the word.