Cigarette Tax Hike in Massachusetts

Massachusetts smokers would pay more than $3 per pack in state taxes under a 50-cent hike in the state cigarette tax Gov. Deval Patrick plans to include in his budget next week, one of a series of revenue proposals that Patrick hopes will generate $260 million in new revenue for his spending plan. The increase in the cigarette tax would mark the second time in his tenure that Patrick has proposed raising the cigarette tax. In 2008, the Legislature approved a $1 increase. The tax on a pack of best quality Bond cigarettes would rise to $3.01 and the administration will also propose applying the new, higher tax rate to all other tobacco products sold in the state, according to Patrick’s budget chief. Under the governor’s plan, Massachusetts would have the fifth highest tobacco tax in the country, but still lower than New York and Rhode Island, said Administration and Finance Secretary Jay Gonzalez. The tax increase would generate $73 million in additional revenue, and be dedicated to the Commonwealth Care Trust Fund to cover half the cost of accepting legal immigrants into the state’s subsidized insurance program as mandated by a recent Supreme Judicial Court Decision. As in years past, Patrick will also call for the application of the state sales tax to candy and soda, and an expansion of the bottle bill to include water bottles, juices, coffee and sports drinks. Those two proposals would generate $62.5 million and $22 million respectively, with $5 million from the bottle bill expansion dedicated to recycling programs and $10 million from the sales tax steered under an existing formula to transportation and school building. “This is something the governor has filed at least once, probably twice before, that has good public policy benefits that discourages consumption of products that are unhealthy for people that cost the taxpayers more in public health costs,” Secretary of Administration and Finance Jay Gonzalez said. House Speaker Robert DeLeo, who led the push to hike the sales tax in 2009, earlier this week told the News Service he would wait to see Patrick’s budget before taking a position on new fees and taxes for next year, though in the past he has ruled them out early in the budget process. The Legislature more than once has rejected Patrick’s call for taxing candy and soda and expanding the bottle bill. “That doesn’t mean we still don’t believe they’re the right things to do, particularly the ones that have public health benefits and there’s a lot of public support for them and that’s why the governor thinks it’s important to seek them,” Gonzalez said. House Minority Leader Brad Jones immediately criticized the plan, saying the state should find other ways to balance the budget rather than pulling money out of the economy. “Is this part of the plan to help balance the budget in New Hampshire?” Jones said, calling the announcement “a Friday afternoon news dump” that he predicted would “go up in smoke.” Gonzalez said the “tradeoffs” to these new revenue proposals would be cuts to programs that are “in many ways on their last legs.” He declined to estimate the extent of spending cuts that will be included in Patrick’s budget. Among the other revenue-generating proposals that Patrick plans to include in his budget is a delay in the FAS 109 deduction which was a component of the corporate tax reform law passed in 2008 giving certain large multi-state corporations a deduction to absorb costs incurred by a new combined reporting requirement. Delaying the implementation for one more year will let the state keep $46 million in revenue, according to Gonzalez. The administration will also recommend applying the motel/hotel excise tax to the full cost of a room, including the markup from Internet resellers, for $7 million in revenue. Two proposed changes to corporate tax law would include a new calculation for corporate taxes on sales based on consumption rather than sale origin, allowing Massachusetts companies that sell products out of state to pay less, while outside companies selling to Bay State consumers would pay more. Subsidiaries of insurance companies that do not perform insurance-related business would also be taxed as a general corporation rather than on investments as insurance companies are currently taxed. The two corporate tax changes would net the state $17 million. The governor’s budget will also recommend eliminating the tax deduction on losing Lottery tickets for $500,000; technology investments to better identify and collect uncollected and underreported taxes for $22.3 million; $5.8 million in agency fee increases; and $5 million in advertising revenue on state websites and vehicles. Administration officials were not able to immediately list the fee hikes but Gonzalez said a Department of Environmental Protection fee associated with permitting would be raised to support the agency’s budget.