REVENUE ESTIMATING CONFERENCE Tax: Cigarette Tax Issue: Tax exempt cigarettes sold on Indian Reservations Bill Number(s): SB1550

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1 REVENUE ESTIMATING CONFERENCE Tax: Cigarette Tax Issue: Tax exempt cigarettes sold on Indian Reservations Bill Number(s): SB1550 X Entire Bill Partial Bill: Sponsor(s): Senator Evers Month/Year Impact Begins: July 1, 2014 Date of Analysis: March 14, 2014 Section 1: Narrative a. Current Law: Currently, tax exempt cigarettes are authorized to be sold at Indian Reservations in Florida to tribal members only. The Department of Business and Professional Regulation (DBPR) provides Indian tax and surcharge exemption coupons to Indian Tribes recognized by the State. The coupons are then presented to wholesale dealers when purchasing tax exempt cigarettes. The number of coupons provided each year is limited to the number of tribal members times five packs times 365. There are currently two Indian Tribes that are recognized by the State of Florida. The Seminole Tribe has six reservations in the state (Big Cypress, Brighton, Fort Pierce, Hollywood, Immokalee, and Tampa) and the Miccosukee Tribe has four (Tamiami Trail, Alligator Alley, and Krome Avenue (2)). Previously (from 1979 to 2009), tax exempt cigarettes could be sold on Indian Reservations to both tribal members and the public. Chapter , L.O.F., repealed the authority to sell to the public. b. Proposed Change: The proposed bill would authorize tax exempt cigarettes to be sold to the public at tribal smoke shops on Indian Reservations. The exemption would apply to both the cigarette tax and the cigarette surcharge. A tribal business entity may purchase taxexempt cigarettes from a wholesale dealer. A tribal member or a member of the public may not purchase more than three cartons of tax exempt cigarettes from a tribal smoke shop within a 7 day period. A tribal smoke shop is defined as an entity located on an Indian Reservation that is authorized to sell tax exempt cigarettes to tribal members and to the public. A tribal business entity is defined as a federally chartered corporation charged with creating, expanding, and developing business enterprises for the economic betterment of a recognized Indian Tribe. A tribal smoke shop must be granted a certificate of authority by a tribal business entity in order to sell tax exempt cigarettes. The tribal business entity must develop criteria for obtaining a certificate, and may charge a reasonable fee for issuance. One of the requirements must be monitoring and enforcing the three carton limit. Each tribal business entity that purchases tax exempt cigarettes must create a fund dedicated exclusively to funding tribal health care, and must deposit three fifths of all fees collected into the fund. In addition, tribal business entities must use all profits derived from the sale of tax exempt cigarettes to fund law enforcement, fire prevention, housing, and youth recreation. Section 2: Description of Data and Sources Tobacco Tax and Surcharge February 2014 Revenue Estimating Conference DBPR historical data for cigarette sales at Indian Reservations (number of packs and amount of foregone tax revenues) American Lung Association report on the cost of smoking in Florida retail price per pack including all taxes Section 3: Methodology (Include Assumptions and Attach Details) The proposed low estimate assumes that the number of tax exempt packs of cigarettes would have grown at the same rate as taxable packs of cigarettes from fiscal years through , and will continue to grow at the rates adopted at the latest tobacco estimating conference. The proposed high estimate assumes that the number of tax exempt packs of cigarettes would grow at a higher rate than taxable packs, based on recent sales trends of tax exempt packs, and the assumptions that increased gaming activity may lead to more sales at these locations and that some people may decide to buy at tax exempt locations more often. See attached for detailed calculations. 311

2 REVENUE ESTIMATING CONFERENCE Tax: Cigarette Tax Issue: Tax exempt cigarettes sold on Indian Reservations Bill Number(s): SB1550 Section 4: Proposed Fiscal Impact High Middle Low Cash Recurring Cash Recurring Cash Recurring (17.9) (19.5) (16.5) (18.0) (19.8) (19.8) (17.7) (17.7) (20.1) (20.1) (17.4) (17.4) (20.4) (20.4) (17.2) (17.2) (20.7) (20.7) (16.9) (16.9) List of affected Trust Funds: Health Care Trust Fund Public Medical Assistance Trust Fund Biomedical Research Trust Fund Alcoholic Beverage and Tobacco Trust Fund Section 5: Consensus Estimate (Adopted: 03/14/2014) The conference adopted a revised estimate that assumed the elasticity affect assumed at the imposition of the surcharge was reversed by half in the first year. GR Trust Local/Other Total Cash Recurring Cash Recurring Cash Recurring Cash Recurring (10.7) (11.7) (17.2) (18.8) (0.2) (0.2) (28.1) (30.7) (11.9) (11.9) (19.1) (19.1) (0.2) (0.2) (31.2) (31.2) (12.2) (12.2) (19.5) (19.5) (0.2) (0.2) (31.9) (31.9) (12.4) (12.4) (19.9) (19.9) (0.2) (0.2) (32.5) (32.5) (12.6) (12.6) (20.3) (20.3) (0.2) (0.2) (33.1) (33.1) 312

3 Tax-exempt Cigarette Sales at Indian Reservations Cigarette Packs % change Tax & Surcharge % change ,233,546 13,639, ,199, % 12,610, % ,223, % 12,279, % ,640, % 10,726, % ,273, % 9,923, % ,797, % 9,762, % ,906, % 9,121, % ,114, % 9,191, % ,386, % 8,944, % ,633, % 9,367, % ,647, % 10,240, % ,568, % 10,134, % ,793, % 10,435, % ,964, % 10,664, % Source: DBPR Division of Alcoholic Beverages & Tobacco Components of Cigarette Prices Component Price Factory Price $2.36 Federal Tax $1.01 State Tax $1.34 Sales Tax $0.32 Mark-ups $0.60 Total $5.63 Source: American Lung Association 313

4 Proposed Fiscal Impact: Low portion sold to portion sold tax-exempt packs Estimated Revenue Loss Packs % change tribal members to public sold to public Cigarette Tax Surcharge Tax & Surcharge Sales Tax Total ,175, % 36.1% 63.9% ,306, % 37.3% 62.7% ,978, % 41.1% 58.9% ,672, % 42.7% 57.3% ,149, % 39.0% 61.0% ,786, % 39.0% 61.0% 10,849,545 3,677,996 10,849,545 14,527,541 3,471,854 17,999, ,474, % 39.0% 61.0% 10,659,500 3,613,570 10,659,500 14,273,070 3,411,040 17,684, ,212, % 39.0% 61.0% 10,499,607 3,559,367 10,499,607 14,058,974 3,359,874 17,418, ,954, % 39.0% 61.0% 10,342,113 3,505,976 10,342,113 13,848,089 3,309,476 17,157, ,699, % 39.0% 61.0% 10,186,540 3,453,237 10,186,540 13,639,777 3,259,693 16,899,469 Distribution of Revenue Loss General Health Care Public Medical County Biomedical Research AB&T Revenue Trust Fund Asst Trust Fund Rev Sharing Trust Fund Trust Fund Total ,872,295 9,981, ,742 97,169 33,507 33,102 17,999, ,751,917 9,806, ,545 95,467 32,920 32,522 17,684, ,650,638 9,659, ,077 94,035 32,426 32,034 17,418, ,550,878 9,514, ,826 92,624 31,939 31,554 17,157, ,452,335 9,371, ,748 91,231 31,459 31,079 16,899,469 General Revenue Sales Tax Cigarette Tax Service Charge Total ,471,854 2,238,237 1,162,203 6,872, ,411,040 2,199,031 1,141,846 6,751, ,359,874 2,166,046 1,124,718 6,650, ,309,476 2,133,555 1,107,847 6,550, ,259,693 2,101,460 1,091,182 6,452,

5 Proposed Fiscal Impact: High portion sold to portion sold tax-exempt packs Estimated Revenue Loss Packs % change tribal members to public sold to public Tax Surcharge Tax & Surcharge Sales Tax Total ,175, % 36.1% 63.9% ,306, % 37.3% 62.7% ,978, % 41.1% 58.9% ,672, % 42.7% 57.3% ,149, % 39.0% 61.0% ,403, % 36.0% 64.0% 11,778,343 3,992,858 11,778,343 15,771,201 3,769,070 19,540, ,661, % 36.0% 64.0% 11,943,240 4,048,758 11,943,240 15,991,998 3,821,837 19,813, ,922, % 36.0% 64.0% 12,110,445 4,105,441 12,110,445 16,215,886 3,875,342 20,091, ,187, % 36.0% 64.0% 12,279,991 4,162,917 12,279,991 16,442,908 3,929,597 20,372, ,456, % 36.0% 64.0% 12,451,911 4,221,198 12,451,911 16,673,109 3,984,612 20,657,720 Distribution of Revenue Loss General Health Care Public Medical County Biomedical Research AB&T Revenue Trust Fund Asst Trust Fund Rev Sharing Trust Fund Trust Fund Total ,460,612 10,836,075 1,065, ,487 36,375 35,936 19,540, ,565,060 10,987,780 1,080, ,964 36,884 36,439 19,813, ,670,971 11,141,609 1,095, ,462 37,401 36,949 20,091, ,778,365 11,297,592 1,111, ,980 37,924 37,466 20,372, ,887,262 11,455,758 1,126, ,520 38,455 37,991 20,657,720 General Revenue Sales Tax Cigarette Tax Service Charge Total ,769,070 2,429,846 1,261,696 7,460, ,821,837 2,463,864 1,279,360 7,565, ,875,342 2,498,358 1,297,271 7,670, ,929,597 2,533,335 1,315,433 7,778, ,984,612 2,568,801 1,333,849 7,887,

6 Proposed Fiscal Impact: Adopted portion sold to portion sold tax-exempt packs Estimated Revenue Loss Simulated Packs % change tribal members to public sold to public Tax Surcharge Tax & Surcharge Sales Tax Total ,633, % 72.3% ,498, % 28.6% 71.4% ,766, % 31.5% 68.5% ,366, % 32.7% 67.3% ,684, % ,408, % 18,443,710 6,252,418 18,443,710 24,696,128 5,901,987 30,598, ,777, % 18,813,425 6,377,751 18,813,425 25,191,176 6,020,296 31,211, ,152, % 19,188,316 6,504,839 19,188,316 25,693,155 6,140,261 31,833, ,532, % 19,568,456 6,633,706 19,568,456 26,202,162 6,261,906 32,464, ,918, % 19,953,917 6,764,378 19,953,917 26,718,295 6,385,253 33,103,548 Distribution of Revenue Loss General Health Care Public Medical County Biomedical Research AB&T Revenue Trust Fund Asst Trust Fund Rev Sharing Trust Fund Trust Fund Total ,682,574 16,968,213 1,668, ,183 56,960 56,272 30,598, ,916,758 17,308,351 1,702, ,494 58,101 57,400 31,211, ,154,220 17,653,251 1,736, ,851 59,259 58,544 31,833, ,395,008 18,002,979 1,770, ,256 60,433 59,703 32,464, ,639,166 18,357,604 1,805, ,708 61,623 60,879 33,103,548 General Revenue Sales Tax Cigarette Tax Service Charge Total ,901,987 3,804,896 1,975,690 11,682, ,020,296 3,881,168 2,015,294 11,916, ,140,261 3,958,507 2,055,452 12,154, ,261,906 4,036,929 2,096,173 12,395, ,385,253 4,116,449 2,137,464 12,639,