LIMIT ON CIGAR TAX

Senate Bill 304 (S-1) as reported from House committee

Sponsor:  Sen. Joe Hune

House Committee:  Tax Policy

Senate Committee:  Finance

Complete to 12-12-18

SUMMARY:

Senate Bill 304 would amend the Tobacco Products Tax Act to permanently cap the tax collected on cigars at a maximum of $0.50 per cigar.

Under current law, other tobacco products (essentially, any tobacco product that is not a cigarette) are taxed at a rate of 32% of the wholesale price. However, Public Act 325 of 2012 capped the tax on any cigar with a wholesale price greater than $1.56 at $0.50 through October 31, 2016, at which point the cap would sunset and all cigars would be taxed at 32% of the wholesale price with no upper limit. Public Act 86 of 2016 extended the sunset through October 31, 2021.

Senate Bill 304 would permanently remove the sunset and cap the tax on cigars at $0.50 per cigar.

MCL 205.427

HOUSE COMMITTEE ACTION:

The House Committee on Tax Policy reported the Senate-passed version of the bill without amendment.

FISCAL IMPACT:

As written, the bill would have no immediate impact on tobacco tax revenue. However, beginning in FY 2021-22, tobacco tax revenue would decline by about $3.0 million per year relative to current law.

Revenue from the 32% wholesale tax on other tobacco products is distributed such that 25% accrues to the General Fund, while the remainder is earmarked to the Medicaid Trust Fund.

POSITIONS:

A representative of Tuttle’s Select Cigars testified in support of the bill. (12-12-18)

The following organizations indicated support for the bill (12-12-18):

·         Michigan Retailers Association

·         Michigan Distributors and Vendors Association

·         Michigan Association of Health Plans

The following organizations indicated opposition to the bill (12-12-18):

·         American Cancer Society Cancer Action Network

·         American Heart Association

                                                                                                Fiscal Analyst:   Jim Stansell

■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.