(The Center Square) – Tax revenue from tobacco sales could increase by $324,000 this fiscal year after the Iowa Department of Revenue identified an inconsistency in the application of the price on which taxes should be calculated.
The Department of Revenue has proposed a new subrule, 83.4(2), “to provide clarity going forward” regarding the sales of tobacco products, the department said in its notice of intended action regarding the rule.
With the subrule, tobacco products sold by manufacturers to distributors at discounted prices, “a lower wholesale sales price” than products that contain the same ingredients and the same package size, would be taxed at “the highest wholesale sales price for that product.” Examples of discounted tobacco products include pre-priced cigars and reduced-priced multipacks of tobacco products.
Six people spoke about the subrule during the public comment portion of the August 17 Administrative Rules Review Committee meeting, Iowa Department of Revenue Public Information Officer John Fuller told The Center Square.
Kathy Gunlock with Core-Mark Midcontinent said during public comment on August 17 she is concerned the addition of the subrule could drive sales across the Iowa border and “create a bigger opportunity for the black market to step in and take advantage of these tax laws and bypassing them.”
Core-Mark Midcontinent Vice President of Sales Iowa/Minnesota Chris Molinsky said the company would not be able to afford to apply full-time staff to monitor manufacturing costs.
The department received “some” responses from the public during a 20-day comment period on the subrule that ended August 17 and has 180 days to review submitted commentary and determine whether it would like to adopt and whether it would like to make any changes to the subrule, the unnamed official said.
“When analyzing whether a tobacco product is discounted for purposes of this rule, the department will consider the manufacturer’s characterization of the tobacco product on the price list, but the manufacturer’s characterization of the tobacco product will not be controlling in the department’s determination,” the notice said.
Anyone who believes the application of the discretionary purposes of the rulemaking would result in hardship or injustice can petition the department for a waiver.
Revenues from tax sales are deposited in the Health Care Trust Fund, which can be used for health care, substance abuse treatment and prevention, and tobacco use prevention, cessation, and control.
The proposed rule is estimated to increase tobacco tax revenue collected for the Health Care Trust Fund by $324,000 for FY 2022, $327,000 for FY 2023, $331,000 for FY 2024, and $334,000 for FY 2025, according to the Legislative Services Agency’s fiscal impact summary.
The Iowa Directory of Certified Tobacco Product Manufacturers is available on the Department of Revenue’s website.
About 16.4 percent of Iowans smoked in 2019, according to the Centers for Disease Control and Prevention’s Behavioral Risk Factor Surveillance System.