WV Center on Budget and Policy > Press > WVCBP in the News > Tobacco Tax Affects State Revenue

Tobacco Tax Affects State Revenue

March 15, 2016

Daily Athenaeum – Senate Bill 420—which would raise taxes on all tobacco products—was stalled in the House Finance Committee this past legislative session. However, there is still a chance for a recovery in a special legislative session this spring, and its implications would be tremendous for the state but devastating for one specific business. Read

The bill passing in its current form would mean a $1 excise tax rate increase on cigarette packs, raising it from 0.55 cents to $1.55, and a 7 percent increase on smokeless tobacco on top of the current 7 percent rate. This increase would be in addition to the 6 percent sales tax for the state.

The passing of this bill would be critical in a time of financial desperation for the state, according to multiple analysts and economists.

“We estimate that the $1 increase will generate more than $100 million (in tax revenue),” said John Deskins, director of the West Virginia University Bureau of Business and Economic Research. “We think maybe $130 million or so is the best-case scenario; right around $100 million is the worst-case scenario, depending on how much people respond to the overall change.”

Deskins and a team of economic researchers recently published a study that considered this proposed tax rate increase and its effect on the state budget, which is currently suffering from a $380 million shortfall.

The 7 percent increase on smokeless tobacco would also generate revenue on its own: an additional $10 million, according to a report by the West Virginia Center on Budget and Policy.