Time to End Stealth Tax Increases

Thirty-two states impose ad valorem excise taxes on moist smokeless tobacco (MST).  An ad valorem tax is based on a percentage of the price of the product, so the tax rises any time the price of the merchandise increases.  This is similar to property taxes that rise along with increased assessed values.

Since ad valorem taxes go up as the value of the product increases, legislators are only held accountable when they increase the percentage that goes to the government.  Otherwise, these are “stealth” tax increases are unfair to consumers and taxpayers.  The ad valorem tax is imposed on top of the federal excise tax.  In those states that have a sales tax as well, taxpayers are being triple taxed on a single product.

A number of states, including Arkansas, Florida, Hawaii, New Hampshire and North Carolina, increased the ad valorem percentage in their states in 2009.  States that have set their ad valorem tax rates at 70 percent or higher include Alaska, Florida, Hawaii, Massachusetts, Minnesota, and Washington.  Wisconsin not only switched from a weight-based tax to an ad valorem tax, but then set the rate at 100 percent, the highest in the nation.

The preferred alternative to ad valorem taxes is an excise tax on a per unit basis, such as weight, which is the case for almost all other products, including cigarettes.  In 2009, Maine, Nebraska, Oregon, Texas, Washington, D.C. and Wyoming switched from ad valorem taxes to weight-based taxes for MST.  Changing from ad valorem to weight-based taxes should both be revenue-neutral and avoid increasing the effective tax rate on any product.

  — John Frydenlun