North Carolina Tax Proposal Would Charge Tobacco Tax for Online Sales, Introduce Tax Cap for Cigars

A major tax bill working its way through the North Carolina legislature includes massive changes to the way cigars are taxed in the state.

H.B. 334, which has passed the House and is currently heading towards a vote in the Senate, will keep the state’s current tax rate of 12.8 percent of the cost price—a term used for the wholesale price—but will introduce a cap of no more than 30 cents in taxes paid per cigar. This would mean lower prices for cigars that have an MSRP of greater than $4.70.

For example, a cigar with an MSRP of $9.50 likely retails for around $10.72 before sales tax under North Carolina’s current laws. Under the proposed changes, the price would be reduced to $10.10 before sales tax per halfwheel estimates. The more expensive the cigar, the greater the savings will likely be.

However, the bill would also introduce new taxes because online and remote sellers of cigars, i.e. stores not based in North Carolina, would be required to pay the state tobacco tax on products sold to consumers who live in the state. Because of this, the state estimates that would bring in an additional $3.7 million in tax revenue next year.

Retailers found in violation of the proposed law would be subject to a $1,000 fine for the first violation and up to $5,000 fines for subsequent violations. In addition, out-of-state retailers would have to apply for a $10 annual license, while out-of-state wholesale dealers would have to apply for a $25 annual license.