What Is Proper Tax Policy for Smokeless Tobacco Products V. 1

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1 Gerald Prante, What Is Proper Tax Policy for Smokeless Tobacco Products 1 (2008)

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What Is Proper Tax Policy for Smokeless Tobacco Products?
Fiscal Fact No. 120
by Gerald Prante
March 26, 2008
(This paper is an updated version of Tax Foundation Fiscal Fact No. 65, available at
http://www.taxfoundationori/piblications/show/23045.html)
While there exist a large literature and extensive policy discussion on the issue of cigarette
taxation, smokeless tobacco has received comparatively little attention. In the past few
years, however, controversy in many state legislatures has erupted over the proper way of
taxing smokeless tobacco, if it should be taxed at all. The goal of this Fiscal Fact is to
clarify the rationale for excise taxation in general from a neutral public finance perspective,
and specifically to explain the proper method of taxation of smokeless tobacco products
and how it compares to cigarette taxation.
The Fallacies of Current Tax Policy on Smokeless Tobacco Products
Even though the federal government taxes smokeless tobacco at a per unit rate based upon
weight, most states tax it based upon the sale price. This can be seen in the following table
of the tax rates on smokeless tobacco across the country.