Jackson Free Press

After a protracted battle between Mississippi Gov. Haley Barbour, the state Legislature and lobbyists, taxes on a pack of cigarettes is 68 cents in the Magnolia State, effective today. The increase is the first in the state since 1985.

Unable to come to an agreement during this year's regular session, a special legislative negotiating committee agreed to upping the state's 18 cent-per-pack tax by 50 cents April 28. The compromise bill passed the House by a 40-4 vote and the Senate by 102-18, sending the bill to Barbour May 7. The governor signed the bill into law two days ago without public comment.

Since then, the Mississippi State Tax Commission has been busy making sure they can collect the revenue from cigarette wholesalers and retailers, the first installment of which is due June 15. Retailers must levy the new tax on cigarettes in stock at the close of business yesterday or at midnight for 24-hour operations.

Mississippi smokers, meanwhile, rushed to stock up before the increased tax hit.

"People are buying two to three cartons at a time," Horn Lake Tobacco Shack employee Rhonda Perry told the Commercial Appeal yesterday. "Our traffic has been heavy all day and everyone's complaining."

The higher state tax comes just 90 days after the feds raised taxes by 39 cents per pack April 1. The new federal tax is $1.01 per pack, making the combined taxes in Mississippi $1.69 a pack, adding about 8.5 cents per cigarette, or $16.90 to a carton. Neighboring Arkansas raised its taxes to $1.15 a pack in February, although their increase accounted for the possibility of lost revenues from smokers crossing state borders for lower prices; cities that border states with a lower rate levy the neighboring state's tax plus three cents, according to the Appeal.

The two states join Rhode Island and Kentucky in raising cigarette taxes this year; Rhode Island's tax is now the highest in the country at $3.46 as of April 10. Mississippi's 68 cent tax is about half the national average of $1.23 per pack.

States bordering Mississippi with lower state cigarette taxes include: Louisiana, 36 cents; Alabama, 42.5 cents; and Tennessee, 62 cents. Opponents of the increase cited those lower taxes as a reason not to enact an increase. The Mississippi bill, however, did not follow Arkansas' example to retain sales in border cities.

Regardless, the bill (HB 364) includes the state tax commission's revenue estimates: $30.74 million for the rest of this year, and $112.9 million for 2010. The legislature reduced the 2010 estimate to just under $106.2 million and warned that the state can expect reduced revenue year over year, because some smokers will quit because of the increased cost. Advocates of the bill say that reduced tobacco-related medical expenses and increased productivity will more than offset the declining revenue.

The bill also specifies that some of the tax revenue will go into the fund that rebates counties for discounts on car tag fees. Originally funded by taxes on new car sales, the fund went bankrupt this year in the wake of the national economic downturn that has severely curtailed sales.

Legislators point to the national recession for making the tax a necessity. Barbour, for example, had been the state's opponent-in-chief of the increase since he took office in 2004. A former tobacco lobbyist who still makes money from tobacco lobbying efforts (although indirectly through a blind trust), Barbour had repeatedly vetoed cigarette tax increases that reached his desk during his tenure. He finally relented last year, when a commission he appointed to study the state's tax situation recommended an increase, but continued to influence the Senate's decision to reduce the proposed $1 tax contained in the original House-passed bill.

Combined with an estimated $400 million budget shortfall for the current fiscal year, Barbour apparently is in no position to veto bills raising additional tax revenue for the state, despite his adamant campaign promises to the contrary. He is currently pushing the legislature hard to enact a hotly contested bill taxing hospital gross revenues, estimated to raise the $90 million needed to cover the state's perennial Medicaid shortfall. The governor is threatening $571 million cuts to the program, which provides medical care to the poor, if lawmakers don't pass the bill.

"Legislators need to face up to the fact that this budget isn't business as usual," Barbour said yesterday in a statement. "Even with the federal stimulus money, there is not enough revenue to cover everything everybody would like to cover."