From the Arkansas Statehouse...

Taxing chaw.

In Cigarette Tax on 15 January 2009 at 1:12 pm

As I reported yesterday, part of Gov. Beebe’s healthcare initiative incorporates a hazy $10 million in additional revenue from a reformed smokeless tobacco tax. In fact, the only information given about the possible tax is the $10 million figure.

Surgeon General Joe Thompson, who has been presenting the initiative at committee meetings, has now provided more detail on what the governor’s office wants.

Currently chaw is taxed at a 32 percent rate based on package price.** The governor’s office wants to change the formula, but it’s unclear whether they will do so by upping the package rate or by taxing based on the weight of the product.

There is currently an industry dispute over which tax is preferable. Brand-names such as Skoal and Copenhagen want the tax to be based on weight: that would ensure that a package of their chaw is taxed at the same rate as a comparably sized package of generic smokeless. Makers of generic tobacco, which sell their product at a lower price than the brand names, want a per package tax.

While Beebe’s office is currently allowing the smokeless industry time to come to an agreement, it expects to soon propose its own tax structure, whether or not the industry comes up with a formula.

“It would be incumbent on the industry to resolve the issue as soon as possible,” Thompson said.

In other cigarette tax news,  Thompson presented the governor’s proposal to the House Public Health committee today. He faced a set of questions that was less muddled and less hostile than those he received yesterday in front of the Senate Public Health committee.

Much of the questioning focused on the proposed trauma system to be paid for with revenue from the tax. Thompson said that hospitals would voluntarily enter the system after meeting a set of state requirements. Local health centers will have a good amount of leeway to decide how trauma money is spent, within certain parameters. There will be no new hospitals built.

Thompson said he expected 30-40 hospitals to volunteer participation. Three would be Level 1 trauma centers providing the highest level of care. Thompson said they would likely include Children’s Hospital in Little Rock, a hospital in Central Arkansas and a hospital in Memphis. Hospitals in Springfield, MO, and Shreveport, LA, are also equipped to serve as Level 1 centers.

* This story originally said that chaw (including smokeless tobacco) is currently taxed at a 32 percent rate based on package price. 32 percent is the new rate that the governor’s office has proposed.

*Correction to the correction: My original 32 percent figure turns out to have been right. I misread the statute. Also, there have been changes to the tax structure outlined above. The most recent proposal (4 February) taxes chewing tobacco solely on price at a 68% rate. There is no longer a distinction between ‘moist snuff’ and non-cigarette tobacco products.

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  1. […] here: Taxing chaw. « The Legislative Beat Post a […]

  2. […] John Williams details a lurking disagreement among tobacco producers on how to assess the $10 million tax increase Gov. Beebe wants on smokeless tobacco. And he provides a bit more detail on how multiple hospitals could participate in the statewide trauma system that would be financed by Beebe’s tax plan. […]

  3. […] whichever is higher. (This formula would seem to take advantage of an industry dispute, which I described earlier, that pits generic companies versus name brands such as Copenhagen.) The bill also contains a tax […]

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