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Cigarette Tax
Recently, 18 states have implemented substantial cigarette tax hikes in response to rising expectations of budget shortfalls in the next few years. Among these, West Virginia's three neighbor states, Maryland, Ohio and Pennsylvania increased rates in 2002. After these rate changes, Pennsylvania and Maryland's rate of $1.00/pack and Ohio's rate of $0.55/pack became significantly greater than West Virginia's current $0.17/pack rate on cigarettes. The rate increases in these northern neighbors underline the possibility of an increase in cigarette tax rate in West Virginia as well. The sizeable gap between West Virginia's rate and the rates in northern neighbors might enable West Virginia to increase its own rate without sacrificing much of the cross border sales of, and thus the exportation of the tax on, cigarettes to these states. However, the total tax revenue impact of a rate increase in West Virginia will depend on the general economic impact of a decrease in cigarette consumption. The repercussions of such a decrease on both cigarette tax collections and other state and local tax collections need to be estimated to see that net effect.
The Bureau of Business and Economic Research is currently in the process of estimating this total tax impact using REMI and other tax impact methodologies including BBER's personal income tax calculator (PITCALC) which is developed by West Virginia Public Finance Program staff. PITCALC calculates personal income tax liabilities of West Virginia residents by utilizing state income tax return data and personal income tax rate schedule.
