Tobacco tax increase yields collection reduction
Pub Date: 5/1/2005
Following a $1 per pack hike in the tobacco tax effective January 1, smokers purchased 1.2 million packs of cigarettes in January compared to 4.8 million in the same month a year prior, according to the Associated Press.
In February, 1.3 million packs were sold compared to 3.8 million the year before. March sales crept up to 2.8 million packs, but that compares to 5.2 million the year before, the AP reported.
In earlier calculations, state fiscal analysts estimated sales declines of 4 to 8 percent, but actual purchase declines in the first quarter are closer to 62 percent, a massive statistical shift.
No one is speculating that actual tobacco consumption has declined by nearly two-thirds. Most concede Montanans have switched to loose tobacco, found other low- or no-tax sources of tobacco such as the internet or neighboring low-tax states, stockpiled tobacco prior to the effective tax implementation date or, to a much smaller degree, may have reduced consumption or quit.
In fact, said Neal Peterson of the Montana Department of Revenue when speaking to the AP, some of the taxed sales decline can be attributed to illegal smuggling rings.
And while the tax rate increased 143 percent, tax collections have declined $620,000. Had purchases remained constant, the state would have collected $23.46 million in the first quarter at the new higher rate, but collected only $9.01 million, which is $5.5 million less than state predictions and compares to $9.63 million in the same quarter one year before.
Meanwhile, many programs the proponents of the tax increase favor were presented to the Legislature for funding from revenues their tax increase is not producing.
Source: The Montana Tavern Times, May, 2005, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.