First some background: Unlike virtually any other product on the market, Texas’ state excise tax on smokeless tobacco is based on the value or price of the can of snuff instead of its weight or on a per-unit basis. That’s vastly different than most every other product subject to the excise or consumption tax. Goods like beer, wine, gasoline or even cigarettes and cigars, are taxed based on weight or per-unit while cans of snuff at the check-out counter will carry wildly different excise taxes. These are like products mind you, and yet they are taxed at different levels. This is no different than a pack of cigarettes: more expensive brands are excised taxed exactly the same as the cheaper brands. Or gasoline: When I fill up, the regular unleaded carries the exact same excise tax as premium.
Smokeless tobacco should be no different. Yet the state’s excise tax is granting tax breaks, yes tax breaks, for discount smokeless tobacco brands. In other words, the state of Texas is effectively granting an incentive for consumers to buy discount brands of this product.
By basing the excise tax on price instead of weight or per-unit like it does with other products, Texas state government is distorting market and unfairly favoring cheaper brands. The unintended consequence? The tax promotes the product usage of younger, less affluent customers and confuses the market.
It should not be the role of government to create a tax incentive for one product over another or a tax break for one brand over another. But that is exactly what is happening in Texas. .
Legislation by state Rep. Warren Chisum of Pampa would correct this flaw in our tax policy by basing the excise tax on smokeless tobacco on the weight of each can.
This would bring smokeless tobacco excise taxation in line with the other products subject to this levy. Importantly, House Bill 1286 would end the government incentives that are distorting the market by playing favorites with one brand over another.
HB 1286 would result in a net increase in state excise tax revenue of $91.4 million in the next biennium. Importantly, this additional revenue would help Texas keep its promise to homeowners by going toward property tax relief. This effectively makes HB 1286 revenue neutral.
There are other serious problems created by this area of the excise tax. Because it is complex and confusing, wholesale grocery distributors sued the state over the process in 1993. The result was a sealed settlement in 2000 and an ongoing series of tax rebates from the state of Texas to some wholesale grocery distributors. According to the Office of the Comptroller, these tax rebates total more than $100 million since 2000. (A March 2, 2007 letter from the Office of the Attorney General notes this litigation issue could be resolved if the Legislature adopts the change called for by Rep. Chisum’s legislation.)
The bottom line is tax dollars go uncollected because of the tax break in the state excise tax. And, the state is paying dearly in litigation costs and ongoing tax rebates to some wholesalers in the form of refunds due to the current excise tax system.
As a nurse, I’m not a proponent of any kind of tobacco use. However, it is a legal product on the market and should be subject to a fair, common sense state tax policy. Reform of this system is the right thing to do for the state and every Texan.
State legislators should support HB 1286.
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