Types

• Taxes are levied on cigarettes in two ways, and both are determined at the state level. The first method is a sales tax calculated when a person buys cigarettes at a retail store. Cigarettes are subject to a special tax called an excise tax. This is a specific tax rate applied to certain products like alcohol and cigarettes. Some states do not have a sales tax, so they collect gross receipt taxes, which are collected at the firm level . This tax rate may be the same as an excise tax applied to gasoline or alcohol.
  
  

Function

• The purpose of high tax rates on cigarettes is to increase the cost of cigarettes and discourage people from smoking. Health experts state that making cigarettes more expensive is one of the most effective ways to decrease use and is noted to be particularly effective with teens.
  
  

Significance

• Smoking is a proven health risk and a significant risk factor in developing lung cancer. The Centers for Disease Control and Prevention estimate that smoking-related health costs are several times greater per pack than the cost of the pack itself to the consumer. Politically, this is used as a rational to increase the cost of cigarettes through taxes.
  
  

Expert Insight

• According to the Centers for Disease Control and Prevention, cigarette companies have made efforts to lower the price of cigarettes in order to keep costs reasonable in the face of high tax rates. To counter this move, many states have implemented polices that set a minimum price that a pack of cigarettes can be sold for.
  
  

Theories/Speculation

• With the publicity and verification of the detrimental health effects of smoking, public officials are looking to recompense the financial burden smoking puts on the health care system. This has created a trend of tax increases on cigarettes that is likely to continue in every state.