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On the radar: Cigarette taxes up in Virginia as of July 1; will annual sales tax holidays provide a boost in 2020?

As of July 1, 2020, taxes on cigarette prices in Virginia will double. However, before concluding it is a major imposition on taxpayers who smoke, the tax will be a relatively meager $0.60 per pack and still leave Virginia’s rate at the 8th lowest in the 50 states. Even though Virginia is fairly populous state, the increase may not register on a national level when the June CPI data is reported at 8:30 ET on Tuesday, July 14. It all likelihood, it will get lost behind upward pressure on food and energy costs.

The state of Georgia declined to increase cigarette taxes, although taxing on vaping products were hiked along with the age to purchase tobacco products from 18 to 21. Georgia’s tax per pack of cigarettes is the second lowest in the US.

States have been reluctant to raise taxes during the long expansion and have had less pressure to do so as state and local economies have managed to prosper, especially during the last few years of the long expansion. When pushed by necessity, states will often first turn to “sin” taxes on items like cigarettes and alcohol rather than broader taxes like those on retail sales and real property which are even more unpopular among consumers. It is harder to gauge taxes on vaping products since those cannot be neatly categorized by pack. It can be by the volume of product purchased or on the wholesale value. Not all states tax these, and some is by local governments. In any case, this is another sin tax item that is likely to be an easier target for generating tax revenue.

Speaking of sales taxes and consumer, the time of year when several states host annual sales tax holidays for back-to-school items is coming up soon. Retailers and consumers like these events, while governments are loath to lose the tax revenue. For retailers it provides a summer promotional period that can help jumpstart fall merchandise sales. For consumers, it can benefit not only those with kids in school as it can save a few dollars on some big ticket items like computers. This year state governments may feel an impulse to cancel the event. However, on balance the positive aspects of encouraging consumer spending and supporting local businesses – and jobs – should quash that.

What is more problematic for back-to-school sales is whether students will indeed be heading back to school. The spread of COVID-19 and the ongoing pandemic may mean that many school districts and colleges will be forced to continue to offer education on-line rather than in person. There may be a lot less demand for school supplies and accessories in 2020.

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