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F I S C A L I M P A C T R E P O R T
SPONSOR Chasey
ORIGINAL DATE
LAST UPDATED
2/21/07
HB 965
SHORT TITLE Cigarette Tax Increase & Distribution
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY07
FY08
FY09
9,747.0
9,650.0 Recurring General Fund
8,290.0
8,207.0 Recurring Other Funds
(see Table 1)
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to SB166 and SB888
SOURCES OF INFORMATION
LFC Files
Responses Received From
Taxation and Revenue Department (TRD)
Department of Health (DOH)
Higher Education Department (HED)
SUMMARY
Synopsis of Bill
House Bill 965 makes several changes regarding cigarette and tobacco revenues and programs.
•
Increase the rate on cigarettes to $0.0755 per cigarette ($1.51 per pack) effective July 1,
2007.
•
Increase the rate on tobacco products to 40 percent effective July 1, 2007.
•
Allows the use of the credit enhancement account (where cigarette tax proceeds are
distributed) and NMFA revenue bond proceeds for land acquisition, planning and new
facilities for the University of NM hospital and cancer research center. (Effective August
1, 2007)
•
Changes distribution rates to add a distribution for department of health to support public
health programs and hold all other beneficiaries harmless. (Effective August 1, 2007)
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House Bill 965 – Page
2
FISCAL IMPLICATIONS
The changes to include land acquisition, planning, and new buildings for UNM facilities does not
have any impact as any of the funds going toward these new purposes will come from other uses
and not from any change in distributions.
The changes in the tax rates and distributions increase general fund revenues by $9.7 million in
FY08 and FY09 (Table 1). The increase in total revenues is $18 million from the increase in the
cigarette tax and an additional $1.5 million from the increase in the tobacco products tax.
Table One: Fiscal Impacts
Current Distributions
Proposed Distributions
Dist Rate
2008
2009
Dist Rate
2008
2009
FY 2008
FY 2009
County Muni Recreation Fund 1.350% $794 $786 0.790% $607 $601
($187) ($185)
County Muni Cigarette Fund 2.690% $1,582 $1,566 1.590% $1,222 $1,210
($360) ($356)
UNM Cancer Center 1.350% $794 $786 6.090% $4,680 $4,633
$3,886 $3,847
NMFA 2.020% $1,188 $1,176 1.190% $914 $905
($273) ($271)
NMFA /Credit Enhancement Account 15.790% $9,286 $9,193 25.430% $19,543 $19,347
$10,256 $10,154
NMFA/UNM Health Sciences Center 14.370% $8,451 $8,366 17.550% $13,487 $13,352
$5,036 $4,986
N
MFA / Department of Health Facilities 6.050% $3,558 $3,522 3.640% $2,797 $2,769
($761) ($753)
Rural County Cancer Treatement Fund 1.000% $588 $582 0.695% $534 $529
($54) ($53)
DOH Public Health
3.310% $2,544 $2,518
$2,544 $2,518
General Fund (Cigarette Taxes) 55.380% $32,569 $32,243 39.715% $30,520 $30,215
($2,048) ($2,028)
TOTAL 100.000% $58,810 $58,221 100.000% $76,848 $76,080
$18,039 $17,858
General Fund Impact
General Fund (Cigarette Taxes)
$32,569 $32,243
$30,520 $30,215
($2,048) ($2,028)
CEA Reversion
$9,286 $9,193
$19,543 $19,347
$10,256 $10,154
Tobacco Products Tax
$4,863 $4,815
$6,404 $6,340
$1,541 $1,525
TOTAL
$46,718 $46,251
$56,467 $55,902
$9,749 $9,651
Estimated Impact on Revenues
Source: TRD
SIGNIFICANT ISSUES
HB 965 significantly increases the tax on cigarettes and other tobacco products. The estimates
shown above are derived using an “elasticity," which is a response adjustment factor to a change
in prices. For many products, particularly those without good substitutes such as tobacco, there
is a negative demand response to an increase in the price of the good. In the case of cigarette
prices, the increase in the price due to the increased tax decreases consumption by 21 percent.
Likewise, the increase in the tobacco tax leads to a decrease in consumption of tobacco products
by 18 percent. According to the Department of Health, increasing the price is one of the best
ways to lower consumption:
Raising cigarette taxes is widely regarded as one of the most effective tobacco prevention
strategies, with such increases leading to “substantial long-run improvements in health"
(Reducing Tobacco Use, Surgeon General, 2000). Increasing the state cigarette excise
tax and tobacco products tax could result in an increase in revenue for the state General
Fund and an anticipated decrease in tobacco consumption by youth and adults
The downside of decreased consumption is that revenues begin to decline making the revenue
source unreliable over the long term. Current estimates indicate that cigarette demand is
declining by at least 1 percent per year. Another downside is that the terms “consumption" and
“demand" that have been used so far refer to the consumption and demand of the taxable
goods—i.e. cigarettes and tobacco products under TRD jurisdiction. In other words, part of the
decrease in demand is not a decrease in the use
of these products but a transfer of the
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House Bill 965 – Page
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consumption to nontaxable goods such as those cigarettes and tobacco products sold by tribal
entities. In other words, many of the health benefits from smoking cessation may not materialize
if the use of tobacco does not go down because of increased demand for nontaxable product.
PERFORMANCE IMPLICATIONS
Higher Education Department (HED):
Revenue generated from HB965 will be used for land acquisition, planning, designing,
construction, equipping, and furnishing additions and/or improvements to the new
facilities for the UNM Hospital and CRTC at the UNM Health Sciences Center.
In 2005, the UNM CRTC was named a National Cancer Institute (NCI)-designated
center. NCI accredits and designates only those centers that conduct outstanding cancer
research focused on translating discoveries into better cancer treatments and tools for
cancer diagnosis and prevention, that provide outstanding state-of-the-art cancer care to
patients, and that reach out to their communities to form partnerships for cancer
education and prevention. This same year, legislation was passed that raised the cigarette
tax in New Mexico to generate additional funds for the UNM CRTC.
Per information from the UNM CRTC, in 2005, the center provided care to over 35% of
the adults and 100% of the children in New Mexico affected by cancer in over 70,000
ambulatory clinic visits. The UNM CRTC has more than 150 cancer physicians and
research scientists.
According to a report issued by the BioTeP Initiative Task Force, a group spearheaded by
the Department of Economic Development Office of Science and Technology with input
from various public/private enterprises making up the bioscience community in New
Mexico, the new Cancer Research and Treatment Center is part of a strategy to grow the
state’s convergent bioscience sector. The new center, with a targeted opening in 2008,
would provide New Mexicans with state-of-the-art cancer treatments on par with the
leading cancer centers across the U.S.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
SB166 is a related bill which regulates nicotine levels.
SB888 duplicates this bill’s tobacco products tax increase.
OTHER SUBSTANTIVE ISSUES
DOH:
Higher cigarette taxes may help decrease the tobacco use disparity in New Mexico
because low-income smokers are more likely to quit as a result of cigarette price
increases (www.cdc.gov/mmwr/preview/mmwrhtml/00054047.htm). Low-income New
Mexico residents smoke at about twice the rate of higher income residents (30% of
people in households < $20,000 annual income vs. 15% of people in households >
$50,000; 2001-2003 NM Behavioral Risk Factor Surveillance System data).
TRD:
In fiscal year 2007 all cigarettes were required to have a stamp affixed to the package,
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House Bill 965 – Page
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including tax free stamps sold by Tribal retailers. The department has issued 19.3
millions tax free stamps through November 2006; an average of 3.86 million stamps per
month, 46 million projected for the year. The increase in price will not necessarily force
people to quit smoking but will provide them with a greater incentive to purchase tax free
cigarettes. The price increase would also increase internet sales of cigarettes. Cigarettes
can be purchased tax free from internet retailers. For consumers that are not in close
proximity of a Tribal retailer, this would be another option to avoid the tax.
If the tax increase is passed NM will have the 12
th
highest cigarette tax in the nation,
currently NM ranks 24
th
. Data was obtained from the Tax Foundation website,
taxfoundation.org.
Cigarette Taxes by State Highlights
Ranking
State
Tax per
Pack
1
New Jersey $2.58
6
Arizona
$2.00
12
New Mexico $1.51
17
Texas
$1.41
26
Colorado
$0.84
The proposed increase in tobacco products taxes would bring NM up to national average
rate. Most states have tax rates of 35% - 45%. Many states have separate taxes for snuff
and cigars; this makes a consistent comparison and ranking difficult. Data was obtained
from the Federal Tax Administrators website, taxadmin.org
Tobacco Products Taxes by State Highlights
State
Snuff
Cigars & Other
Washington
75%
75%
Arizona $ 0.133 / oz
$0.263 - $2.60 / 20
Cigars
New Mexico 40%
40%
Texas
35.21% $.01 - $ 0.15 / 10 Cigars
Colorado
40%
40%
NF/mt