Changes tax provisions to allow little cigars to be taxed at the same rate as cigarettes

Title of bill

An act to amend the tax law, in relation to little cigars

Summary of specific provisions

This bill defines little cigars to include any cigar product, other than a cigar product wrapped in natural leaf tobacco wrapper that weighs not more than three pounds per thousand. Such little cigars are practically indistinguishable from cigarettes and are often consumed as less expensive cigarette alternatives. It makes sense to level the playing field by taxing little cigars and cigarettes at the same state excise tax rates.

New York State currently imposes a $2.75 state excise tax. per pack of cigarettes. The state excise tax on little cigars is 46% of the wholesale price. Given the current wholesale prices for little cigars, imposing a $2.75 excise tax on little cigars would substantially increase the state's tax receipts per package and thus create greater revenue for the state.

The bill makes clear that if a product fits within the definition of little cigar, but at the same time also meets the definition of cigarette under the expanded definition of cigarette that was expanded last year, such product will be treated for all purposes of the excise tax law (e.g. the stamping requirements) as a cigarette and not as a little cigar.

Currently, New York City imposes a $1.50 tax per pack of cigarettes. New York City is also authorized to tax little cigars from 1 to 3 cents per cigar, based on the sales price of the cigar, but may not impose a tax on cigars that are sold at a price less than seven cents a cigar. The bill authorizes New York City to impose a tax on little cigars equal to that imposed on cigarettes, thus potentially resulting in significant revenue increases for New York City as well.

Justification

Equalizing the tax rate on little cigars and cigarettes serves important public health goals by increasing the retail price of such products, which can be expected to reduce consumption levels of little cigars, especially among those under the legal smoking age.

Budget implications

Adoption of these amendments would generate net revenue increases for New York State, compared to revenue collections under current law. This bill will increase the state's receipts by $ million in 2010-11 and $ __ million when fully effective, more than doubling the revenue currently generated from the excise tax on little cigars.

Effective date

The amendments would take effect July 1, 2010.