Cigarette tax revenue up despite fall in sales
Posted on Wednesday, January 25, 2006
Tax revenue from cigarettes sold in Arkansas increased by nearly $ 4 million in 2005 even though the adult smoking rate and cigarette sales declined from the previous year, state officials said Tuesday.
“With regard to cigarettes, we’ve seen something fairly unique in calendar year 2005,” said John Theis, assistant revenue commissioner for the state Department of Finance and Administration. “We saw a significant increase in Arkansas cigarette tax collections without an increase in the Arkansas cigarette tax.” He told state legislators during a joint House and Senate Public Health, Welfare and Labor Committee meeting that the unusual situation resulted from an increase in Oklahoma’s cigarette tax from 23 cents per pack to $ 1. 03 per pack.
The jump likely sent Okla- homa customers to Arkansas for their cigarettes and encouraged Arkansas smokers who previously bought cigarettes across the state line to start buying at home, Theis said. At the same time, Oklahoma’s new tax meant some Arkansas communities along the Oklahoma border had to increase their cigarette tax from 26 cents per pack to 59 cents per pack.
In communities neighboring states with lower cigarette taxes, such as Fort Smith, Arkansas charges the other state’s tax plus 3 cents. When border states’ cigarette taxes rise beyond Arkansas ’ 59-cent tax — as Oklahoma’s did Jan. 1, 2005 — the border communities in Arkansas must begin charging 59 cents, like the rest of the state.
That meant that in 2005, Arkansas collected 33 cents more per pack — 59 cents, up from 26 cents it collected previously — in the Arkansas communities bordering Oklahoma than it had in 2004. The state estimates that about 14. 1 million packs of cigarettes were sold in 2005 in areas that formerly charged the Oklahoma border zone rate, compared with 13. 4 million sold in those areas in 2004.
Even with that regional increase in sales, Arkansas retailers sold about a million fewer packs in 2005, dropping from 228. 3 million in 2004 to 227. 4 million in 2005. At the same time, cigarette tax revenue increased from $ 125. 8 million to $ 129. 7 million.
The numbers didn’t satisfy some legislators who are concerned about the adult smoking rate in Arkansas. The state’s tobacco-use prevention and cessation program, run by the Health Division in the state Department of Health and Human Services, has spent more than $ 40 million since fiscal 2002 to reduce smoking rates. Anti-smoking efforts include school prevention programs, a phone line for counseling, medication and a public education campaign.
After a slight increase from 2003 to 2004, the percentage of adult smokers declined from 25. 6 percent in 2004 to 23. 5 percent in 2005, according to new data collected by the Health and Human Services Department. The percentage is based on telephone survey data collected by the division using a questionnaire from the federal Centers for Disease Control and Prevention. Several thousand respondents in Arkansas are used for the survey, and the findings are reported annually to the federal agency.
“I’m sure there are fewer people [smoking ],” said Dr. Joe Bates, deputy state health officer for the Health and Human Services Department. “I think we’re decreasing, I would estimate, about 5, 000 fewer adults [smoking ] per year in Arkansas.” And the percentage of high school students who said they had smoked within the past 30 days dropped from 43. 2 percent in 1997 to 29. 3 percent in 2003. Updated information presented to legislators Tuesday showed further progress with 26. 3 percent of high school students in 2005 saying they smoke.
While Rep. Bill Pritchard, RElkins, acknowledged the validity of the survey data, he was skeptical of using the state tax data to draw conclusions about cigarette consumption.
“Based on these figures... it’s difficult to say smoking rates have gone down in Arkansas,” Pritchard said, asking Theis for confirmation.
Theis acknowledged that it was difficult, pointing out that as a tax collector, state smoking rates were not in his purview.
Pritchard said after the meeting that, “I just don’t think we’re getting an accurate picture on how many cigarettes Arkansans are buying.” He said there is no data on the number of Arkansans buying cigarettes in other border states where the cigarette tax is lower. Missouri’s tax is 17 cents per pack, Texas’ is 41 cents, Tennessee’s is 20 cents and Louisiana’s is 36 cents. Arkansas’ 59-cent tax is the 29 th-highest in the nation.
Rhode Island, New Jersey and Michigan charge the highest at $ 2. 46, $ 2. 40 and $ 2 per pack, respectively.
“We’ve used these figures... to say that smoking has slowed down in Arkansas,” said Rep. Daryl Pace, R-Siloam Springs. “We want some accurate accounting.” Theis’ tax data showed that Arkansas’ cigarette tax revenue has increased each year since 2000. Revenue jumped by more than $ 21 million in 2004 after the state’s tax increased from 34 cents per pack to 59 cents per pack.
Theis said his agency does not have a good handle on the amount of cigarettes Arkansans are buying on the Internet. A recent federal law requires online vendors to report their customers’ names and purchases to state tax collectors. So far, Arkansas has collected about $ 200, 000 from Arkansas Internet customers. But considering that there are hundreds of Internet vendors, Theis acknowledged that his agency has “just scratched the surface” of that market.
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