Why A Pack Of Cigarettes Is So Expensive In New York

American smokers will tell you about the huge price discrepancies for cigarettes state to state.

The main reason for this is the varying excise taxes (SET) that each state places on a pack of smokes.

Citi’s Tobacco team led by Vivien Azer expects SETs to only become an increasing problem for the tobacco companies.

Here’s Citi:

Taxation – Numerous Challenges Ahead. The major manufacturers expect a much more challenging SET environment in 2013, relative to those seen in 2011 and 2012. On a weighted-average basis, (Reynolds American) RAI expects the SET rate to increase $0.10 pp, or +7% relative to the $1.40 pp SET average seen in 2012.

Indeed, year-to-date we have seen legislation for cigarette excise tax increases proposed in 23 states (though several have already failed, notably in Nebraska, North Dakota and Wyoming), and decreases proposed in three states. Interestingly, we’ve seen proposals in each of the three largest states by consumption (Texas, California and Florida), as well as a number of proposals as part of budgetary bills (i.e., in Massachusetts, Minnesota and New Hampshire).

Assuming no changes to the volume contributions by state, we estimate that the best-case scenario for 2012 to be a roughly 1% decline (-$0.02 pp) in the weighted-average cigarette SET rate, and a 37% increase (+$0.52 pp) in the worst-case scenario. Also worth noting, U.S. President Obama has proposed to increase the federal excise tax on cigarettes by 94.6 cents per pack on Jan. 1, 2014 (+94% from the current rate of $1.01) and to index the tax rate to inflation beyond 2014. It remains to be seen whether this proposal will be approved by U.S. Congress, though early indications suggest Republicans are opposed.

Here’s a map of the state excise tax rates.  New Yorkers who often pay over $10 per pack won’t be surprised by the high tax rate in its state.

cigarette excise tax map

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