Tobacco is big business in the U.S. and around the world, and the companies that produce tobacco earn strong profits. Over time, federal and state governments have increasingly shared in the revenue from cigarettes and other tobacco products. In the two decades between 1992 and 2012, total federal tax collections on tobacco tripled to $15.6 billion, while net state tax collections have risen at almost the same pace to more than $18.2 billion in 2012. For producers, taxes have risen in concert, with Altria Group (NYSE:MO) having paid $6.8 billion in excise taxes on tobacco products in 2013, while Reynolds American (NYSE:RAI) paid $3.7 billion and Lorillard (UNKNOWN:LO.DL) added almost $2 billion more.
The most recent version of the compilation The Tax Burden on Tobacco -- for which subsidiaries of Altria, Reynolds American, and Lorillard provided financial support -- goes into much greater detail about how tobacco gets taxed across the nation, shedding some light on which governments reap the most from tobacco taxes. Let's take a look at the five states that bring in the most tax revenue from tobacco.
Michigan collected $972 million in net tobacco taxes in 2012, with the vast majority of those revenues coming from cigarette sales. According to figures from the Tax Foundation, Michigan ranks just outside the top 10 in terms of cigarette excise taxes per pack at $2, and while that's less than half of New York's per-pack amount, Michigan residents smoke more than two and a half times as many packs of cigarettes, helping bolster tax revenue. With other sources of taxation facing challenging times within the state, Michigan's tobacco taxes represented more than 1.5% of overall state revenue three years ago -- the second largest proportion in the nation.
Pennsylvania collected $1.12 billion from taxes related to tobacco in 2012. The Keystone State is the only one of the top five states not to impose taxes on tobacco products other than cigarettes. But on a per-person basis, cigarette smoking is more prevalent in Pennsylvania than in any of the other states on this top five list, with the typical Pennsylvanian smoking 55 packs of cigarettes over the course of a year. Recently, lawmakers looked to impose an additional $2 per pack excise tax in Philadelphia in order to help close a budget gap for the local school district, but delays in the vote forced schools to open without a resolution to the financial issues.
The state of Florida pulled in almost $1.24 billion from taxes on tobacco products, with cigarette taxes making up 92.5% of that total and taxes on loose tobacco, chewing tobacco, and snuff making up the difference. Florida doesn't have a state income tax, so the importance of other revenue sources is magnified in order to keep the state's budget flush with cash. Interestingly, though, Florida consumers pay less than the national average for cigarettes, with total taxes adding less than $2.70 per pack to the cost smokers pay. That helped Florida sell 875 million taxable packs of cigarettes in 2012. A proposal to boost cigarette taxes further sparked debate earlier this year, but with the state looking to roll back taxes in other areas, tobacco users probably can breathe easy, at least for now.
The largest state in the lower 48 by size raised $1.48 billion in tobacco taxes in 2012, but what makes Texas stand out is its success in getting tax revenue from forms of tobacco other than cigarettes. The $185 million in taxes on cigars, snuff, chewing tobacco, and loose tobacco that Texas imposed was nearly double what the next highest state collected. Texas also gets a big portion of its overall tobacco taxes in the form of general sales tax, ranking second only to California on that front. Modest prices help contribute to Texas selling 943.5 million packs -- the second-most in the nation -- and only 7.5 million packs behind California despite having a smaller population.
1. New York
New York tops the list of tobacco-taxing states, pulling in $1.63 billion and being responsible for close to 10% of the entire state-level taxes imposed on tobacco products across the nation. Interestingly, New York has been able to sustain those receipts despite having the highest average price per pack of cigarettes in the U.S., topping out at nearly $10. Of that amount, state and federal taxes make up more than $5.75, ranking New York No. 3 behind Rhode Island and Connecticut in the percentage of the total consumer price paid in tobacco taxes. In addition to state-level taxes, New York City collects more in local tobacco taxes than any other city in the U.S., with revenue of $126 million in 2012. Put together, those factors give New York the lowest volume of packs sold, at just 18 packs per person annually.
New York has also been the biggest beneficiary of settlement payments from Altria, Reynolds American, Lorillard, and other tobacco companies. Payments of almost $738 million even inched out California despite New York's smaller population.
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