No municipality will collect or charge any special tax on cigarettes. While excise taxes on tobacco increase prices and reduce consumption, the tobacco industry may transfer the tax to more expensive products and offer coupons and price discounts to ensure that lower-priced products remain available. Six states (Arizona, Kentucky, Maine, Pennsylvania, Texas and Vermont): Guam, the Marshall Islands and Palau impose taxes per ounce. The persistence of lower-priced products, disproportionately purchased by low-income smokers, in jurisdictions with high excise taxes is an Achilles' heel of tobacco tax policy.
However, the increase in excise taxes creates new sources of income that can be used to increase staffing and expand tax administration systems. After a tax increase, many tobacco users reduce their consumption; a study conducted after a tax increase in Australia revealed that 47.5% of smokers reduced or tried to quit smoking. We propose that increasing excise taxes will be more effective in reducing the persistence of lower-priced products and income disparities between smokers when taxes are designed to frequently and substantially increase prices for all products and are combined with (a) laws on minimum prices and (b) prohibitions on coupons, discounts and other promotions. The transfer of differential taxes between premium brands and discount brands is another way in which the tobacco industry offsets the impact of the increase in excise taxes.
In the STATE System, excise taxes on tobacco products are included for combustible and fireproof (smokeless) tobacco. They can easily offset the impact of excise taxes by using price reduction strategies and varying the transfer of taxes depending on price segments. Twenty-one states and Puerto Rico have defined special taxes on certain types of non-combustible tobacco, such as chewing tobacco and dry and wet tobacco. While excise taxes on cigarettes are arguably the best and most commonly used policy to increase cigarette prices, taxes are only one component of retail cigarette prices.
They can also use counterfeit tobacco that is manufactured or imported into the United States without any tax payments to sell it at a reduced price to consumers. There are five types of products within the non-combustible tobacco category, and states can tax all products equally under a broad definition or separately, citing specific product types.
