Raising cigarette tax goes on task force lists

Some members of the Legislature’s tax-overhaul task force want to explore raising the state’s excise tax on cigarettes, including an increase of 15 cents a pack, to raise more revenue to compensate for cutting income taxes.

The current tax on cigarettes is $1.15 a pack. Lawmakers also discussed imposing an excise tax on e-cigarettes, which are subject to sales taxes but not to any tobacco-specific levies.

Other task force members intend to check out other options, such as imposing a special sales tax on cigarettes and alcohol; increasing excise taxes on beer and wine; and overhauling fuel taxes to raise more money for highways. The committee met this week, heard testimony and then listed preferences for further study.

“I want to be clear that this is not a recommendation of the task force,” one of the co-chairmen, Sen. Jim Hendren, R-Sulphur Springs, said Thursday before he read a list of excise and miscellaneous taxes that each of the members indicated on paper that they want to review for possible changes. “This is not a proposal. This is simply a member wanting more information of consideration about some possible change.”

The 16-member Tax Reform and Relief Legislative Task Force has been reviewing various aspects of the state tax code since May 2017. Under state law, the task force is required to make its recommendations to the General Assembly and Gov. Asa Hutchinson by Sept. 1.

The task force was created to placate some lawmakers who want the Legislature to cut the state’s top individual income-tax rate of 6.9 percent to make it more competitive with surrounding states. In February, Hutchinson signaled he wants the 2019 Legislature to cut that rate to 6 percent, which he projected would reduce state revenue by about $180 million a year.

Lawmakers have indicated their range of preferences for cuts included reducing individual income rates; simplifying individual tax brackets and tables; creating an earned income-tax credit; reducing corporate rates; and changing the corporate tax base.

The discussion of what to do with tobacco-related taxes came Wednesday after an official with the American Cancer Society’s Cancer Action Network suggested raising the excise tax by $1.50 a pack from the current $1.15.

Michael Keck, the network’s government relations director, proposed the increase to raise an estimated $121 million more a year to offset the state’s smoking-related costs, improve public health and potentially finance tax cuts.

The current tax of $1.15 per pack raises $165.2 million in general revenue and $5.3 million in special revenue a year, according to the Department of Finance and Administration. Cigar and other tobacco taxes also raise $55.1 million in general revenue and $1.7 million in special revenue, the department said.

Texas is the only state neighboring Arkansas with a higher tax of $1.41 per pack, according to a Tax Foundation report. Of the other neighbors, Missouri’s is 17 cents per pack; Louisiana, $1.08; Oklahoma, $1.03 (but increasing to $2.03 in July); Mississippi, 68 cents; and Tennessee, 62 cents, the report said.

But Nicole Kaeding, special projects director for the Tax Foundation, on Thursday testified against Keck’s proposal.

Raising the cigarette tax that much would lead people to smuggle cigarettes from neighboring states with lower taxes and prove to be an unstable source of tax revenue, she said.

According information posted Friday on the General Assembly’s website, Sen. Missy Irvin, R-Mountain View, wants more information about the option of raising the cigarette tax to $1.30 a pack with the increased revenue devoted to reducing the income-tax burden. Sen. David Wallace, R-Leachville, intends to explore raising the cigarette tax as well.

Keck told the task force this week that Arkansas doesn’t have an excise tax on vaping products, which are subject to the state’s general 6.5 percent sales tax.