Category Archives: Tobacco (HRS 245)

SB 887, HD-1

SUBJECT:  TOBACCO, Increase Tobacco Tax Rate on Cigarettes and Little Cigars

BILL NUMBER:  SB 887, SD-2, HD-1

INTRODUCED BY:  House Committee on Health

EXECUTIVE SUMMARY:  This is a 30%+ tax increase beginning on 7/1/19 on cigarettes and little cigars.  The increased taxes are having an effect on consumption, which means the tax cannot be expected to produce stable funding.  Lawmakers may want to consider direct appropriations to programs now being supported by earmarks from this tax.

SYNOPSIS:  Amends HRS 245-3 to increase the tax on cigarettes and little cigars to 20 cents per unit sold, used, or possessed by the wholesaler or dealer on and after 7/1/16.

Amends HRS section 245-15 to provide that the revenue generated under the rate increase shall be distributed as follows:

  • _____ cents per unit to the Hawaii cancer research special fund (current law 2.0 cents), for research, including research for liver and bile duct cancer, and operating expenses and for capital expenditures;
  • _____ cents per unit, but not more than $7,400,000 in a fiscal year, to the trauma system special fund (current law 1.125 cents);
  • _____ cents per unit, but not more than $8,800,000 in a fiscal year, to the community health centers special fund (current law 1.25 cents);
  • _____ cents per unit, but not more than $8,800,000 in a fiscal year, to the emergency medical services special fund (current law 1.25 cents);
  • _____ cents per unit, with no maximum, to a special account of the state general fund for expenditure to repay medical school loans of graduates of the John A. Burns school of medicine, who practice in primary care in the medically underserved population areas of this State, as determined by the John A. Burns school of medicine (new); and
  • _____ cents per unit to the health systems special fund (new); and
  • Any excess goes to the general fund.

Makes conforming amendments to section 323F-21, HRS.

EFFECTIVE DATE:  July 1, 2050; the tax hike and the revenue reallocation are effective July 1, 2051.

STAFF COMMENTS:  This measure is clearly a tax hike.  Previous increases have begun to have an effect on collections not only locally but also nationally.  Collections have fallen below their previous levels, and the increase in the legal smoking age from 18 to 21 also is anticipated to have a negative effect on consumption.

Source:  Department of Taxation Annual Report (2018)

For whatever reason, the rise in rate has jeopardized this source of revenue. If nothing else, lawmakers need to make up their minds whether or not they see this tax as a source of revenue or a means by which to deter consumption.

As predicted, programs that have been fed by earmarks from the tobacco tax, like the Cancer Research Center, have become a victim of the success of tobacco cessation programs and publicity.  Revenues produced by the tobacco tax have been in steady decline over the past few years despite tax rate increases, and hoisting the smoking age to 21 in the 2015 session certainly didn’t reverse the trend.

Do we really need an elaborate study to tell ourselves that fiscal reliance on funds from a sin tax is inadvisable or outright dangerous?  If the goal is to affect social behavior, use of the tax law is not the most effective way to do so.

Digested 3/15/2019

SB 887, SD-2

SUBJECT:  TOBACCO, Increase Tobacco Tax Rate on Cigarettes and Little Cigars

BILL NUMBER:  SB 887, SD-2

INTRODUCED BY:  Senate Committee on Ways & Means

EXECUTIVE SUMMARY:  This is a 30%+ tax increase beginning on 7/1/19 on cigarettes and little cigars.  The increased taxes are having an effect on consumption, which means the tax cannot be expected to produce stable funding.  Lawmakers may want to consider direct appropriations to programs now being supported by earmarks from this tax.

Continue reading SB 887, SD-2

SB 1405, SD-2

SUBJECT:  TOBACCO, Prohibits Shipment of Tobacco Products, Adds Electronic Smoking Devices, Hikes Rates and Fees

BILL NUMBER:  SB 1405, SD-2

INTRODUCED BY:  Senate Committees on Judiciary and Ways & Means

EXECUTIVE SUMMARY:  Prohibits the shipment of tobacco products, and the transport of tobacco products ordered or purchased through a remote sale, to anyone other than a licensee. Makes all provisions of the cigarette tax and tobacco tax law that relate to tobacco products applicable to e-liquid. Increases the license fee for wholesalers or dealers and the retail tobacco permit fee. Amends the taxes on cigarettes and tobacco products. Increases the excise tax for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer. Increases the excise tax on the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer.  Our question is whether tax increases are an effective way to advance the social policy goals contained in this measure.

SYNOPSIS:  Adds a new section to chapter 245, HRS, to establish the offense of unlawful shipment of tobacco products.  If a person is in the business of selling tobacco products and ships to a person in Hawaii that is not a tobacco tax licensee, the person commits the offense.  Exceptions are provided if the tobacco products are exempt from Hawaii tobacco tax, or Hawaii tobacco tax on the products is already fully paid.  The offense is a class C felony if the products being shipped have a value (defined to be fair market value at the time of the offense) of $10,000 or more, otherwise it is a misdemeanor.

Amends section 245-1, HRS, to include “e-liquid” within the definition of tobacco products taxable under the Tobacco Tax Law, and to define “e-liquid” as any liquid or like substance that may or may not contain nicotine and that is designed or intended to be used in an electronic smoking device, whether or not packaged in a cartridge or other container; except that E-liquid shall not include prescription drugs; medical cannabis or manufactured cannabis products; or medical devices used to inhale or ingest prescription drugs, including manufactured cannabis products sold or distributed in accordance with section 329D-10(a).

Defines “electronic smoking device” as any electronic product, or part thereof, that can be used by a person to simulate smoking in the delivery of nicotine or any other substance, intended for human consumption, through inhalation of vapor or aerosol from the product.  Electronic smoking device includes but is not limited to an electronic cigarette, electronic cigar, electronic cigarillo, electronic pipe, electronic hookah, vape pen or related product, and any cartridge or other component part of the device or product.

Amends section 245-2, HRS, to raise the annual fee for a tobacco license from $2.50 to $250.00.

Amends section 245-2.5, HRS, to raise the annual fee for a retail tobacco permit from $20 to $50.  Provides that the applicant for such a permit shall specify whether each place of business sells e-liquid, and that the permit shall state whether the place of business permitted sells e-liquid.

Amends section 245-15, HRS, to add an earmark of $100,000 to go to the Hawaii tobacco prevention and control trust fund and $100,000 to the University of Hawaii cancer center to support tobacco and cancer prevention research.

Repeals chapter 28, part XII, HRS, relating to the electronic smoking device retailer registration unit within the Department of the Attorney General.

Repeals section 245-17, HRS, relating to delivery sales.

EFFECTIVE DATE:  March 15,2030.

STAFF COMMENTS:  The question that should be asked is the purpose of the tobacco tax. If the goal is to make people stop smoking by making it cost-prohibitive to smoke, then (a) it’s working, as hikes in the cigarette tax have begun to exert downward pressure on collections not only locally but also nationally, but (b) it shouldn’t be expected to raise revenue, because of (a). If the goal is really to stop the behavior, why are we not banning it?

As the Foundation’s previous President, Lowell Kalapa, wrote in the Tax Foundation of Hawaii’s weekly commentary on October 28, 2012:

Lawmakers seem to have a simplistic reaction to solving problems the solution to which plagues their constituents – tax it.

Probably the best example is what people like to call sin taxes, those excise taxes that are levied on tobacco and alcohol products.  After all, smoking causes cancer and alcohol causes all sorts of problems including driving under the influence.  Lawmakers and community advocates shake their heads and push for higher tax rates, arguing that making these products more expensive will deter folks from using these products.

The problem is that lawmakers also like the revenues that are generated from the sales of these products and, in some cases, they have tried to link the use and sale of these products with noble causes such as the funding of the Cancer Research Center that is currently being built.  Again, the argument is that smokers should pay for programs and projects which seek to cure the related ill which in this case is cancer caused by smoking.

The irony is that arguments to increase the tax on tobacco and, more specifically, cigarettes, is a goal of getting smokers to quit while depending on the revenues from tobacco and cigarette taxes to fund an ongoing program, in this case the Cancer Research Center.  So, which is it folks, stop smokers from smoking and if successful, there won’t be any revenues to fund the Cancer Research Center?

The fact of the matter is that it appears that both locally and nationally, higher taxes on cigarettes is having an effect on smokers as, for the first time, tax collections on the sale of cigarettes have fallen below the previous year’s tax collections.  Certainly some of the decline is due to smokers actually quitting, but to some degree one has to suspect that some purchases were made via mail order from exempt Indian reservation outlets while others may be what is called gray market purchases, that is from sources outside the country.

What should come as a surprise is that most of the folks who have quit are of some means as they are more likely to recognize the health hazard caused by use of this product. That means most of those who are still smoking are among the lower-income members of our community.  Thus, the tax is regressive, generating less and less collections from middle and higher-income individuals.

As predicted, programs that have been fed by earmarks from the tobacco tax, like the Cancer Research Center, have become a victim of the success of tobacco cessation programs and publicity.  Revenues produced by the tobacco tax have been in steady decline over the past few years despite tax rate increases, and hoisting the smoking age to 21 in the 2015 session certainly didn’t reverse the trend.

Source:  Department of Taxation Annual Report (2017-2018), page 22.

Do we really need an elaborate study to tell ourselves that fiscal reliance on funds from a sin tax is inadvisable or outright dangerous?  If the goal is to affect social behavior, use of the tax law is not the most effective way to do so.

Digested 3/11/2019

SB 1405, SD-1

SUBJECT:  TOBACCO, Prohibits Shipment of Tobacco Products, Adds Electronic Smoking Devices, Hikes Rates and Fees

BILL NUMBER:  SB 1405, SD-1

INTRODUCED BY:  Senate Committee on Commerce, Consumer Protection, & Health

EXECUTIVE SUMMARY:  Prohibits the shipment of tobacco products, and the transport of tobacco products ordered or purchased through a remote sale, to anyone other than a licensee. Makes all provisions of the cigarette tax and tobacco tax law that relate to tobacco products applicable to e-liquid. Increases the license fee for wholesalers or dealers and the retail tobacco permit fee. Amends the taxes on cigarettes and tobacco products. Increases the excise tax for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer. Increases the excise tax on the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer.  Our question is whether tax increases are an effective way to advance the social policy goals contained in this measure.

Continue reading SB 1405, SD-1

SB 887, SD-1

SUBJECT:  TOBACCO, Increase Tobacco Tax Rate on Cigarettes and Little Cigars

BILL NUMBER:  SB 887, SD-1

INTRODUCED BY:  Senate Committee on Commerce, Consumer Protection, and Health

EXECUTIVE SUMMARY:  This is a 30%+ tax increase beginning on 7/1/19 on cigarettes and little cigars.  The increased taxes are having an effect on consumption, which means the tax cannot be expected to produce stable funding.  Lawmakers may want to consider direct appropriations to programs now being supported by earmarks from this tax.

Continue reading SB 887, SD-1

HB 1574, HD-1

SUBJECT:  TOBACCO, Prohibits Shipment of Tobacco Products, Adds Electronic Smoking Devices, Hikes Rates and Fees

BILL NUMBER:  HB 1574, HD-1

INTRODUCED BY:  House Committee on Health

EXECUTIVE SUMMARY:  Prohibits the shipment of tobacco products, and the transport of tobacco products ordered or purchased through a remote sale, to anyone other than a licensee. Makes all provisions of the cigarette tax and tobacco tax law that relate to tobacco products applicable to e-liquid. Increases the license fee for wholesalers or dealers and the retail tobacco permit fee. Amends the taxes on cigarettes and tobacco products. Increases the excise tax for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer. Increases the excise tax on the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer.  Our question is whether tax increases are an effective way to advance the social policy goals contained in this measure.

Continue reading HB 1574, HD-1

HB 387, HD-1

SUBJECT:  TOBACCO, Prohibits Shipment of Tobacco Products, Adds Electronic Smoking Devices, Hikes Rates and Fees

BILL NUMBER:  HB 387, HD-1

INTRODUCED BY:  House Committee on Health

EXECUTIVE SUMMARY:  Prohibits the shipment of tobacco products, and the transport of tobacco products ordered or purchased through a remote sale, to anyone other than a licensee. Makes all provisions of the cigarette tax and tobacco tax law that relate to tobacco products applicable to e-liquid. Increases the license fee for wholesalers or dealers and the retail tobacco permit fee. Amends the taxes on cigarettes and tobacco products. Increases the excise tax for each cigarette or little cigar sold, used, or possessed by a wholesaler or dealer. Increases the excise tax on the wholesale price of each article or item of tobacco products, other than large cigars, sold by the wholesaler or dealer.  Our question is whether tax increases are an effective way to advance the social policy goals contained in this measure.

Continue reading HB 387, HD-1

SB 887

SUBJECT:  TOBACCO, Increase Tobacco Tax Rate on Cigarettes and Little Cigars

BILL NUMBER:  SB 887

INTRODUCED BY:  KANUHA, K. KAHELE, K. RHOADS, Shimabukuro

EXECUTIVE SUMMARY:  This is a 30%+ tax increase beginning on 7/1/19 on cigarettes and little cigars.  The increased taxes are having an effect on consumption, which means the tax cannot be expected to produce stable funding.  Lawmakers may want to consider direct appropriations to programs now being supported by earmarks from this tax.

Continue reading SB 887

HB 1048; SB 1274 (Identical)

SUBJECT:  FUEL, LIQUOR, TOBACCO, Allows DOTAX to Set User Fees by Rule

BILL NUMBER:  HB 1048; SB 1274 (Identical)

INTRODUCED BY:  HB by SAIKI (Introduced by request of another party); SB by KOUCHI (Introduced by request of another party)

EXECUTIVE SUMMARY:  Allows the Department of Taxation to set reasonable fees for registration, permits, or licenses by administrative rulemaking.

Continue reading HB 1048; SB 1274 (Identical)