Tobacco taxes help Illinois schools

Every package of cigarettes sold in Illinois adds money to the state’s school fund.

Illinois tags a 98-cent tax on every package of cigarettes sold in the state, collecting an estimated $560 million during fiscal year 2010.

The tax stands almost as a twin to Indiana’s cigarette tax — which is 99.5 cents per pack. Illinois’ tax rate ranks 32nd nationally, with Indiana’s rate coming in at number 33.

Some members of the Illinois Legislature want to change that.

Earlier this year, a bill to increase Illinois’ cigarette tax by a total of $1 during four years fell just short of passage in the House. Members of the Senate did approve the bill.

Senate President John Cullerton, D-Chicago, re-introduced the bill — Senate Bill 6 — which would add an estimated $377 million for Illinois schools. The new bill, Senate Bill 6, has been referred to the Assignments Committee.

If the proposed $1 per pack additional tax passes the General Assembly, the disparity in tax rates would prompt Illinois smokers in Vermilion County and the surrounding area to head across the state line to Indiana.

State Rep Chad Hays, R-Catlin, said he would not support the bill if it passes the Senate.

“There’s an impact to local businesses with this,” Hays said. “We have warehousing in the district that will be affected. McLane Midwest ships cigarettes throughout the Midwest. Higher taxes in Illinois could hurt that.

“There’s also the pragmatic issue of the cigarettes already stamped. Cigarettes going to various counties already carry the proper stamp. I asked the sponsor (of the veto session bill) to allow inventory already stamped to be exempt from any new tax to keep the cost of re-stamping the packs to a minimum. He agreed to put that language in the bill.”

State Sen. Mike Frerichs, D-Champaign, also said he would not favor the change.

“It’s a regressive tax,” Frerichs said. “They’re trying to solve the state’s (financial) problems … but this is a tax that hurts the working poor.”

Frerichs also said a higher cigarette tax in Illinois would put local retailers at a disadvantage with competitors across the state line in Indiana.

“And there’s no guarantee it would bring in as much money as projected,” he said.

The proposed increase would push Illinois’ rate to 15th in the nation, according to the Campaign for Tobacco-Free Kids. The group supports the increase because it also would bring in revenue for programs to educate children about the dangers associated with smoking.

Illinois now sits between two extremes with its current cigarette tax. To the west in Missouri, smokers pay only 17 cents per pack in taxes, which ranks as the second lowest rate in the nation.

To the north, Wisconsin charges smokers $2.52 per pack in taxes. That rate is seventh highest in the United States. Tax rates for the rest of Illinois’ neighbors are: 60 cents in Kentucky, which ranks 40th; and $1.36 per pack in Iowa, which ranks 25th highest in the nation.

Toss in the federal cigarette tax of $1.01 per pack, and the charges really start to add up. And Illinois allows local government to tack on their own tax rates as well.

For example, Chicago smokers pay the federal and state rates, plus a 68-cent per pack tax imposed by Chicago and a $2 per pack tax approved by Cook County. The combined tax on each pack is $4.67 — and that’s before sales taxes. The price of a pack of smokes in Chicago can climb to almost $10.

The extra revenue would help Illinois schools. The state’s cigarette tax brings in almost as much money for schools as the Illinois Lottery. The lottery brought in $625 million for schools in 2009. The state paid schools about $7.8 billion that year, which includes revenue from both the lottery and cigarette taxes.

Heather McKiernan, director of finance for Danville’s District 118 schools, said in an e-mail there’s no way to break down how much money from the cigarette tax comes into the local district. The money comes as part of the state’s contribution, which includes calculations based on a number of factors.