KGOU

Cigarette Sales Down 25% In Oklahoma, Tax Revenue Up $133 Million

Jul 24, 2019

In 2018, cigarettes received an additional $1-per-pack tax as part of an effort to help fund teacher pay raises. Journal Record editor Russell Ray discusses the impact of the tax increase, how our tax rate on cigarettes compares to other states and the history of tobacco taxes in Oklahoma. 

Full Transcript: 

Katelyn Howard: This is the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I’m Katelyn Howard, and with me is Journal Record editor Russell Ray. 

It’s been a little over a year since taxes were increased on motor fuel, oil and gas production and cigarettes in an effort to help fund teacher pay raises. Today I want to specifically focus on the cigarette tax hike and its impact. In 2018, cigarettes received an additional $1-per-pack tax, bringing the total state tax to $2.03 a pack. Your reporter Daisy Creager writes that since the increase, cigarette sales have dropped 25% in Oklahoma, and state revenues from the tax have increased by $133.3 million. Now Russell, can you give us a little background on these tax measures?

Ray: Well a year ago, the state increased taxes on transportation fuel, oil and gas production and cigarettes. Those increases were projected to bring in an additional $475 million in revenue. Instead, those tax hikes have yielded an additional $693 million so that’s $218 million more than projected. Revenue from the gasoline tax rose by $47 million, diesel tax revenue was up by $44 million, revenue from the gross production tax on oil and gas was up by $470 million and cigarette tax revenue increased by $133 million. Now the revenue is being used to fund a $6,100 a year pay increase for public school teachers, in addition to fudning textbooks, health benefits and raises for support personnel.

Howard: In the article, Oklahoma State Department of Health Tobacco Manager Christin Kirchendauer says the department researched similar measures in other states and that the drop in sales by almost 60 million packs aligned with their expectations. So how does our tax rate on cigarettes compare to other states? 

 

Ray: As of January, Oklahoma had the 14th-highest cigarette taxes, with Washington, D.C. topping the list at $4.50. Missouri’s was the lowest at 17 cents. And in 2016, federal and state taxes, on average, accounted for 44.3% of the retail price for one pack of cigarettes, according to the Tax Foundation.

Howard: I recently spoke with Kirchendauer about this drop in cigarette sales, and she said the single most effective way to reduce smoking rates is to tax the product. But given what we know about the health risks of tobacco products like cigarettes, she says declining smoking rates are inevitable for several reasons. 

Christin Kirchendauer: That’s just the way that it works. We do see sales decline over time, whether that be people smoking less, quitting or eventually people do die, which results in people not smoking. So we do know that there is a general decline that occurs over time, but when you increase the tax, you see a greater decline so we should see this continue to decline over the next few years.

Howard:  Kirchendauer added that her department doesn’t know how much of the decline in cigarette sales is directly related to the tax and that the data needs to be analyzed to know the extent taxation played in the drop. Now Russell, voters tend to be willing to increase so-called “sin taxes” like taxes on tobacco. And this goes as far back as 1917 when Oklahoma first started taxing tobacco. 

Ray: Well, that’s right. Between 1895 and 1921, 14 states including the Oklahoma Territory and then, after its 1907 induction to statehood, Oklahoma banned the sale of cigarettes. And the first Oklahoma excise tax on cigarettes was signed into law in April of 1933. Another temporary excise tax of 3 cents per pack was enacted in May of 1937 and was renewed in 1939. So this marked a transition in Oklahoma from temporary taxation to permanent taxation. Since then, the tax on cigarettes has kept on rising. It was 23 cents per pack in 1987. In 2005, it was raised to more than $1 per pack through a vote of the people.

Howard: Russell Ray is editor of The Journal Record. Thanks for joining me today, Russell. 

Ray: My pleasure, Katelyn. Thank you. 

Howard: KGOU and the Journal Record collaborate each week on The Business Intelligence Report. You can follow us both on social media. We're on Facebook, Instagram and Twitter:  @journalrecord and @kgounews. You’ll find links to the stories we discussed during this episode at JournalRecord.com. And this conversation, along with previous episodes of the Business Intelligence Report, are available on our website, KGOU.org. For KGOU and the Business Intelligence Report, I’m Katelyn Howard. 

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

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