Legislators consider $95M tobacco tax bill

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ANNAPOLIS — Members of a Senate budget committee Wednesday will consider a bill that will increase taxes and related licensing fees on tobacco products by $95 million annually.

The bill, sponsored by Sen. Richard S. Madaleno Jr., D-Montgomery County, is part of a promised effort to add $1 per pack of cigarettes in order to increase efforts to cut smoking in the state. But the bill also seeks to increase fees related to internet sales and increase most licensing fees by as much as 10 times the current rate.

The proposal, if passed, would make the state’s tobacco tax rate the highest in the mid-Atlantic area. It comes at a time when newly sworn-in Republican Gov. Lawrence J. Hogan Jr. has promised not to increase taxes in the state.

“While the governor may have run on a no-new-taxes campaign, a majority of members who were elected to House and the Senate pledged to raise this tax to dedicate more money to access to health care and cancer research,” said Madaleno, vice chairman of the Senate Budget and Taxation Committee.

When reminded of Hogan’s anti-tax stance, Madaleno replied: “We’ll see.”

Opponents of the bill say Hogan’s anti-tax pledge all but guarantees the measure will go up in smoke.

“This was a read-my-lips election,” said Bruce Bereano, a lobbyist who represents tobacco wholesalers and is an ardent Hogan supporter. “I would hope that state government would hear that, heed that and follow it.”

Bereano called the bill “a full-out assault on the tobacco industry in Maryland. It’s extreme and unrealistic.”

A hearing on the bill is scheduled for Wednesday afternoon in the Senate Budget and Taxation Committee. An identical bill filed in the House of Delegates has not yet been set for a hearing.

Under the proposal, the tax on cigarettes would increase from $2 to $3 per pack. The tax on other tobacco products would increase from 30 to 76 percent or a minimum dollar amount — $3 in many cases — depending on which is greater. The 15 percent tax rate on premium cigars would remain unchanged.

Additionally, the bill increases a number of tobacco-related licensing fees. Licenses for both manufacturing and warehousing of cigarettes or other tobacco products would increase from $25 to $250 annually. Renewal fees for some tobacco-related licenses issued by the comptroller would increase from $30 to $200 annually.

Additionally, licenses issued by local counties would increase from $30 to $250 a year for retailers. Tobacconist licenses would increase from $15 to $200 annually.

The proposed bill also establishes a framework for Internet sales of tobacco and creates a new set of licenses aimed at those sales and the delivery companies that transport mail-order tobacco products. Direct shippers would pay a $200 annual licensing fee while common carriers would pay $100 for a license.

Madeleno said the fees were an attempt to level the playing field for local businesses that lose sales to Internet purchases.

The bill also carries a mandate that Hogan and future governors include $21 million annually for smoking cessation and other related programs. The balance, about $80 million annually, would go to the state’s general fund.

The additional money could be used to offset cuts to programs that provide prenatal health care to pregnant women who earn between 180 and 250 percent of the poverty level.

“This would give our governor and the legislature greater flexibility in dealing with some of our health care cost issues,” Madaleno said. “I think people would rather make sure low- and middle-income women have access to prenatal health care and pay a little bit more for cigarettes than to have cheaper smokes and pregnant women without health care.”

Bereano, the tobacco industry lobbyist, said the tax will only cause Maryland residents to purchase their cigarettes and other products in jurisdictions where the taxes are lower.

“People just don’t understand it but if you look at a map of Maryland you see that it’s easy to get to another jurisdiction to purchase your cigarettes and other tobacco products,” Bereano said, adding that his clients who sell similar products in Pennsylvania, Delaware and West Virginia have seen sales increases in those states. Those wholesalers attribute the increased sales to Maryland residents crossing the borders to purchase cheaper products.

If passed, the increases would make Maryland’s tax rate on both cigarettes and other tobacco products the highest compared to five other neighboring jurisdictions, including Delaware, Pennsylvania, Washington, D.C., Virginia and West Virginia. Currently, Maryland is second to the District of Columbia.

Virginia and West Virginia are home to the lowest tobacco taxes, according to the Department of Legislative Services.

Introduction of the bill this year was not unexpected.

Vincent DeMarco, president of the Maryland Citizens’ Health Initiative, said the effort will help decrease smoking in the state and that a $1 per pack increase in 2007 has helped drive down smoking among teens.

“We want to continue to build on that progress,” DeMarco said. “The public supports it.”

Prior to the election, DeMarco and his organization announced they had secured pledges of support from more than 51 percent of legislative candidates who won their respective primaries.

Currently, Madaleno is the only sponsor on the Senate bill. The House bill has two sponsors.

DeMarco acknowledges that legislative support isn’t the biggest hurdle for the bill. Hogan, who has not officially taken a position on the specific legislation, appears steadfast in his anti-tax pledge.

“We have not heard anything to the contrary,” DeMarco said.