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State economists lower forecast for tobacco tax revenues, settlement payments

With Floridians purchasing fewer packs of cigarettes and a top cigarette company fighting to avoid settlement payments, state economists are forecasting a dip in tobacco tax collections and settlement revenues going forward.

During a Tuesday meeting of the Revenue Estimating Conference, state economists said many smokers are smoking less and some are switching to “e-cigarettes” for their nicotine fix rather continuing on with traditional cigarettes — an important distinction since the liquid used in “vaping” isn’t taxed in Florida.

In addition to sales tax, Florida levies a $1.34 excise tax on each pack of cigarettes sold in the state, well below the national average of $1.69 per pack. The January estimate put Florida’s 2017-18 revenues from cigarette taxes at $1.07 billion, reflecting a $13.3 million reduction from the prior forecast.

Through July, tobacco tax collections are another $19 million short of forecasts for the year and those present at the REC meeting were all bearish when updating their collections estimates, positing negative growth of between 2 percent and 2.5 percent for coming fiscal years — the conference went with the middle number, 2.25 percent.

Though cigarette taxes were down, tax revenues for “other tobacco products” such as smokeless tobacco and cigarillos were. That doesn’t balance out the reduced collections from cigarettes, however, as one member of the conference said that amounted to a $500,000 surplus over initial forecasts. In January, the Revenue Estimating Conference forecast $94.8 million in collections from taxes on OTP purchases.

Economists were in agreement that revenues in that category would continue to grow in the coming years and adjusted their estimates up by about 5 percent.

As to why more Floridians were spending more on “other tobacco products” while shelling out less for cigarettes, there was no single explanation.

One member of the panel hypothesized that low unemployment producing more Floridians with money in their pocket may be leading to “higher quality smoking” rather than less smoking overall, though it’s not clear if a regular paycheck truly leads tobacco users to upgrade from cigarettes and beer to cigars and brandy.

Payment estimates related to the landmark 1990s legal settlement with tobacco companies threw another wrench in the gears.

The state is currently battling R.J. Reynolds over whether it should continue making payments relating to cigarette brands it has sold off to Imperial Tobacco Group, which hasn’t stepped in to take over the payments in the company’s stead.

Late last year, a circuit court judge ruled that R.J. Reynolds must keep paying their share, but with the case still tied up in court there is uncertainty over how long it will take before a final ruling is handed down.

Economists settled on zeroing out R.J. Reynolds payments for the next two years but noted that they expect Florida to prevail in court and for that cash — $68.4 million for the two years — to eventually be forked over. Back in May, the conferences estimated those payments be $391.7 million for the current fiscal year, followed by $389.1 million in the 2018-19 fiscal year and $393.6 in the 2019-20 fiscal year.

Written By

Drew Wilson covers legislative campaigns and fundraising for Florida Politics. He is a former editor at The Independent Florida Alligator and business correspondent at The Hollywood Reporter. Wilson, a University of Florida alumnus, covered the state economy and Legislature for LobbyTools and The Florida Current prior to joining Florida Politics.

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