LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 79TH LEGISLATURE 3rd CALLED SESSION - 2006

April 27, 2006

TO:	Honorable Steve Ogden, Chair, Senate Committee on Finance
FROM:	John S. O'Brien, Deputy Director, Legislative Budget Board
IN RE:	HB5 by Hamric (Relating to increases in the taxes on cigarettes and other tobacco products.), As Engrossed

Estimated Two-year Net Impact to General Revenue Related Funds for HB5, As Engrossed: a positive impact of $678,415,000 through the biennium ending August 31, 2007.

General Revenue-Related Funds, Five-Year Impact:

Fiscal Year	Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2007	$678,415,000
2008	$690,904,000
2009	$731,254,000
2010	$634,920,000
2011	$675,203,000

All Funds, Five-Year Impact:

Fiscal Year	Probable Revenue Gain/(Loss) from GENERAL REVENUE FUND 1
2007	$678,415,000
2008	$690,904,000
2009	$731,254,000
2010	$634,920,000
2011	$675,203,000

Fiscal Analysis

The bill would amend Section 154.021(b) of the Tax Code, relating to the cigarette tax, and Section 155.0211(b) of the Tax Code, relating to the tobacco products tax.

The bill would increase the cigarette tax rate from $20.50 to $70.50 per thousand for cigarettes weighing three pounds or less per thousand, the equivalent of raising the tax by $1.00 per pack of twenty cigarettes. The bill would increase the cigarette tax rate to $72.60 per thousand for cigarettes weighing more than three pounds per thousand. Cigarette tax revenue generated by the rate increase would be allocated to the General Revenue Fund.

The bill would increase the tax rate for tobacco products other than cigars from 35.213 percent to 40 percent of the manufacturer's list price, exclusive of any trade discount, special discount, or deal. Tobacco products tax revenue generated by the rate increases would be allocated to the General Revenue Fund.

This bill would take effect September 1, 2006.

Methodology

The estimates are based on analysis provided by the Comptroller of Public Accounts.

The Comptroller reports that the proposed tax rate increases would have a negative effect on the taxable consumption of cigarettes and other tobacco products in Texas. Potential revenue collections were adjusted for consumption and tax avoidance effects and for collection lags.

The Comptroller's analysis assumes that allocations to General Revenue would begin when the new tax revenue reached the State Treasury, which would be approximately one month following the bill's effective date.

Local Government Impact

No fiscal implication to units of local government is anticipated.

Source Agencies:

304 Comptroller of Public Accounts

LBB Staff:

JOB, SD, EB