Higher Tax Rates in Effect for Chicago Tobacco Consumers

January 22, 2014

Since the Civic Federation’s last blog on changes to taxes imposed on tobacco purchases, Chicago area local governments have increased tobacco tax rates, which will have an impact on Chicago consumers.

As part of the FY2013 budget and effective March 1, 2013, Cook County increased its home rule tax rate from $2.00 to $3.00 per pack of cigarettes. As part of the City’s FY2014 budget, Chicago’s home rule tax rate increased from $0.68 to $1.18 per pack of cigarettes, effective January 10, 2014. These changes increased the composite cigarette tax from $5.67 per pack of cigarettes to $7.17, the largest per-pack tax in the country. New York City’s second-highest composite cigarette tax rate is $6.86 per pack.

Composite Tobacco Tax Rates and Historical Changes

A tobacco consumer in Chicago is subject to tax rates imposed by the federal government, State of Illinois, Cook County and City of Chicago. Below is a chart that compiles the composite tax rate for cigarettes and other tobacco products. Cigarette packs have 20 cigarettes. State and local laws specify tax per cigarette, but per pack is used here for simplicity.

On April 1, 2009, the federal tax on cigarettes increased by $0.62 to $1.0066 per pack. Effective June 24, 2012, the State of Illinois increased its cigarette tax by $1.00 from $0.98 per pack of cigarettes to $1.98. Effective July 1, 2012, the State also expanded its definition of cigarettes to include little cigars. See the IIFS blog for more information on the State’s cigarette and tobacco tax changes. With the approval of the FY2013 budget, Cook County increased its tax on cigarettes from $2.00 per pack to $3.00 per pack, effective March 1, 2013. With the approval of the FY2014 budget, the City of Chicago increased its tax on cigarettes from $0.68 per pack to $1.18 per pack, effective January 10, 2014.

Federal, state and local governments also tax other tobacco products, including loose tobacco, chewing tobacco, snuff, cigars, etc. Since last year’s blog, there have been no changes to taxes of other tobacco products. For more information on these taxes, please see the Civic Federation’s blog here.

(26 USC Sec. 5701)
(35 ILCS 130/1ff, 35 ILCS 135/1ff and 35 ILCS 143/10-lff)

(Code of Ordinances of Cook County, Illinois, Chapter 74, Article X)
(City of Chicago Municipal Code, Chapter 3-43)

Impact on Government Revenues

Both the County and the City projected increases in cigarette tax revenues for the year in which they increased their tax rates. However, it was noted by both governments that when the cigarette tax rate increased due to tax hikes by other overlapping governments, their own revenues declined due to a subsequent fall in consumption.

When the Cook County Board of Commissioners approved the FY2013 Appropriation Bill in November 2012, the County projected revenues from the cigarette tax to increase from $122.4 million in FY2012 to $133.3 million in FY2013. The $10.9 million increase was the result of the $1.00 per pack increase in the County’s cigarette tax (estimated to generate $25.6 million in new revenue) and was partially offset by declines in consumption thanks to a $1.00 hike in the cigarette tax by the State of Illinois in 2012. When the FY2014 budget was released, the projected actual revenues from the cigarette tax came in at a higher $145.0 million for FY2013. However, the County estimated a decrease for FY2014.

Similarly, when the City of Chicago proposed its tax increase for 2014, the City projected revenues to increase from $16.5 million in FY2013 to $22.9 million in FY2014 with the $0.50 per pack tax rate increase. The $1.5 million decline from FY2012 to FY2013 was due to the State and County tax increases, according to the City’s budget book.

In the coming weeks, the Civic Federation will release its annual Selected Consumer Taxes in the City of Chicago report which includes additional information about the many other consumer taxes imposed on Chicago residents. Last year’s report can be accessed here.