California Voters Approve Massive Cigar, Cigarette Tax Increase

For the first time since 1999, California has raised the taxes on cigarettes—and thanks to an interesting provision in the state laws, the state’s taxes on cigars are also going up.

Just before midnight local time, the Associated Press called the decision on Proposition 56, a ballot measure that asked California voters whether to raise the tax on cigarettes from 87 cents to $2.87 per pack.

California voters overwhelmingly said yes.

Taxes on cigars will also be going up substantially. California adjusts taxes on other tobacco products, including cigars, every year. The state’s Board of Equalization determines the rate by dividing the tax rate per cigarette—currently 4.35 cents—by the average wholesale cost per cigarette. This rate changes each year, it currently is 27.3 percent of the wholesale cost and has stayed around 30 percent since 2011.

In 2013, the Board of Equalization estimated that if the cigarette tax was raised to $2 per pack, the tax on other tobacco products, including cigars, would more than double, to 67.41 percent of the wholesale price.

This means a cigar with an MSRP of $9.50 likely retails for around $13.36 in the state currently, it will now retail for around $17.58 once the new taxes go into effect.

Matt Dogali, the senior director of state legislative affairs for the International Premium Cigar & Pipe Retailers Association (IPCPR), told halfwheel that the group is still waiting on a clarification of whether Proposition 56 will be instituted as a floor tax. There’s nothing in the language of the proposition itself, but a floor tax would mean retailers would be subject to paying additional taxes on all products on their shelves by a certain point. These taxes would be instituted so that all products on a retailers shelf had paid the same tax.

The next tax adjustment from the Board of Equalization is expected to go into effect on July 1.

Proposition 56 comes after numerous attempts by state Democrats to raise the cigarette tax through legislation. Bills failed in both the last regular session as well as a special session that resulted in California raising its minimum tobacco purchasing age from 18 to 21.

California’s 87 cents per pack tax on cigarettes was actually the 15th lowest in the country, it now will be the ninth highest in the nation.