Monday, July 2, 2007

The truth about the tax and Native American reservations

I have read many news articles and editorials that claim that the $1.25 increase in the cigarette and tobacco products tax will fail because consumers will simply drive to Native American reservations to purchase these products. I'd like to clear up this misconception.

People can choose to drive to reservations to purchase these products, but the time and gas money might not be worth it; they'll likely be required to pay the same price as they would at their local corner store. Currently, many Native American retailers on reservation and trust lands collect Wisconsin's tobacco tax and send it to the state. In other words, a pack of cigarettes costs the same whether you're on or off the reservation. The difference lies in how the Department of Revenue (DOR) treats the tax once it has been paid. Wisconsin statutes require that the DOR refund most of the collected taxes back to the tribes. It's a full (100%) refund for packs bought by tribal members and a 70% refund for packs bought by non-tribal members. For other tobacco products it's a 100% refund for tribal members and a 50% refund for non-tribal members. Consumers pay the tax, but the tribes eventually recoup those taxes through the refund system. This way, there's no incentive for Native American retailers to sell non-taxed tobacco products. The Legislative Fiscal Bureau's paper on the cigarette and other tobacco products tax was really helpful in explaining this aspect of the tax in detail.

It should also be pointed out that in addition to the ability of Native American retailers to collect the Wisconsin tobacco tax, the majority of people will continue to purchase cigarettes just as they always have: at the corner store or supermarket where they regularly shop. To read more about research and statistics related to this issue, click here.

An increase in the cigarette tax will work for Wisconsin - the state will get more tax revenue to help offset the cost that smokers incur through Medicaid and other programs, some smokers will decide to quit or cut back on how much they smoke, and fewer kids will start smoking.

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