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Cigarette and Tobacco News:

Border Zone Cigarette Taxation: Arkansas's Novel Solution to the Border Shopping Problem

Fiscal Fact No. 168
Read complete article: Tax Foundation, 2009-04-09
Author: Mark Robyn

Summary:
On February 12, the Arkansas General Assembly passed legislation to increase the state's excise rates on all tobacco products. As required by the bill, on March 1 the cigarette tax went from 59 cents to $1.15 per twenty-pack.1 But the same tax rate will not be enforced statewide. In a novel provision, the legislation, Act 180 of 2009, included a lower, variable rate for certain towns and stores located near the Arkansas border. . . .

Arkansas legislators are shrewdly acknowledging that cross-border shopping for low-tax cigarettes is a major problem for tax enforcement. To retain tax revenue and stop tax evasion, Arkansas has established a low-tax zone on its own side of the border. If this policy is successful in Arkansas other state legislatures may follow suit. To understand the rationale for this policy, the first of its kind among states, it is necessary to understand the problems that sometimes accompany cigarette taxation. . . .

It is important to note that this policy effectively shrinks the "tax border" of Arkansas. While there is still a minimum rate differential of three cents between Arkansas and any low-tax neighbor, this amount is small enough to provide almost no incentive for Arkansas residents to buy in other states. A significant tax differential does still exist however. The differential is now between different jurisdictions within the borders of Arkansas rather than between Arkansas and other states. . . .

Conclusion

Arkansas's border zone tax policy is a first in the world of cigarette excise taxation. This choice of policy is an acknowledgement of what many policy experts have been pointing out for a long time, that cigarette excise taxes are very susceptible to evasion through border shopping and other means, and that as tax differentials increase, these illegal activities become an increasing problem. Arkansas's policy may be successful enough that other states will consider similar policies in the future. While the policy will likely reduce border shopping and increase revenue to some degree, there are pros and cons that need to be weighed when states are considering whether to implement such a policy. The Arkansas experience will be instructive.

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The Social History of Smoking

George Latimer Apperson

Chapter 8:

Notwithstanding the unfashionableness of tobacco, there were still some noteworthy smokers to be found among the clergy. Dr. Sumner, head master of Harrow, who died in 1771, was devoted to his pipe. The greatest of clerical "tobacconists" of late eighteenth century and early nineteenth century date was the once famous Dr. Parr. It was from him that Dr. Sumner learned to smoke. When he and Parr got together Sumner was in the habit of refilling his pipe again and again in such a way as to be unobserved, at the same time begging Parr not to depart till he had finished his pipe, in order that he might detain him, we are told, in the evening as long as possible.

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The Social History of Smoking

George Latimer Apperson

Chapter 6:

Even children seem to have smoked sometimes in the coffee-houses. Ralph Thoresby, the Leeds antiquary, tells a strange story. He declares that, one evening which he spent with his brother at Garraway's Coffee-house, February 20, 1702, he was surprised to see his brother's "sickly child of three years old fill its pipe of tobacco and smoke it as audfarandly as a man of three score; after that a second and a third pipe without the least concern, as it is said to have done above a year ago." A child of two years of age smoking three pipes in succession is a picture a little difficult to accept as true. As this is the only reference to tobacco in the whole of his "Diary," it is not likely that Thoresby was himself a smoker.

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