Cigarette tax revenue to outdo corporations Tobacco expected to bring in $95 million

AUGUSTA – Cigarette taxes are expected to become the No. 3 revenue generator for the state this year and bring in even more than corporate income taxes.

The state’s latest revenue forecast shows that taxes on cigarettes and tobacco products are expected to generate about $95 million this fiscal year. Corporate income taxes are projected to be about $90 million.

Laurie Lachance, the state economist, said it’s hard to fathom that cigarettes generate more revenue for the state than corporations.

“To think that our taxes on packages of cigarettes have passed the taxes on our corporations,” she said. “It sounds like that can’t be right, but it is.”

Personal income taxes are the top revenue source for the state with $1.2 billion this fiscal year. Sales taxes will bring in another $840 million.

Officials say there are two reasons cigarette taxes have overtaken corporate income taxes: increases in cigarette taxes and declining corporate profits from the continuing recession.

Just two years ago, corporate income taxes generated nearly twice as much money as cigarette taxes. That year, corporate taxes totaled $150 million, while tobacco taxes generated $78 million.

But the cigarette tax has nearly tripled in the past five years, increasing from 37 cents to 74 cents a pack in 1997, and to $1 a pack last October.

Officials don’t know how the tax increases will affect future sales of cigarettes.

It remains to be seen how much cigarette tax increases have on smoking patterns.

“It continues to amaze us,” said Michael Allen, an economist with Maine Revenue Services, the state’s tax agency. “We try to make some assumption about consumption” in building revenue forecasts.

“It always turned out that we’re too optimistic about how much it’s going to reduce the consumption.”

The $95 million in cigarette taxes do not include Maine’s portion of the tobacco settlement with cigarette companies, which will produce about $50 million a year for the state.