Revenue Estimating Conference Tobacco Tax and Surcharge Executive Summary

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Revenue Estimating Conference Tobacco Tax and Surcharge Executive Summary February 12, 2014 The Revenue Estimating Conference reviewed Tobacco Tax and Surcharge revenues on February 12, 2014. The forecasts for cigarette revenues and other tobacco products revenues were both decreased from the October 2013 conference results. Cigarette tax and surcharge revenues were $4.0 million under estimate for December 2013 and January 2014. There has been a steady downward trend in cigarette tax and surcharge revenues over the past eight fiscal years as people have continued to reduce consumption or have substituted to other products such as smoke-less tobacco and electronic cigarettes. The Conference reduced the revenue estimate for Fiscal Year 2013-14 by nearly $6 million and projected stronger declines than were previously projected in each fiscal year thereafter. The Fiscal Year 2013-14 estimates also reflect a negative impact from refunds that have been issued as a result of litigation regarding the tax treatment of other tobacco products. Refunds in the amount of $1.48 million have been issued by the department from the Cigarette Trust Fund, which includes revenues generated from cigarette taxes, cigarette surcharges, and other tobacco products surcharges. The $1.48 million was applied proportionately to the revenue sources in the trust fund. The resulting impact will only affect Fiscal Year 2013-14 cigarette revenues, in the amount of about $352,000 from taxes and $1.04 million from surcharges. In addition, other tobacco product surcharges were adjusted to reflect a negative impact of about $87,000. The Conference also decreased projections for other tobacco products tax and surcharge revenue compared to the prior forecast. These revenues have seen strong growth over the past several fiscal years. However, the new revenue projections include a recurring negative impact related to the litigation on these products described above. Currently, the recurring impact is estimated to be $2.14 million, but it could be larger. Otherwise, growth in revenues for fiscal years 2014-15 through 2018-19 is expected to be more consistent with historical trends and the increases that were projected before the litigation occurred. The table on the next page summarizes the changes in collections and distributions relative to the October 2013 Forecast.

Comparison of the October 2013 and February 2014 Forecasts COLLECTIONS Cigarette Tax October 2013 285.3 276.3 271.5 267.4 263.4 259.5 255.6 February 2014 285.3 274.9 269.4 264.7 260.7 256.8 252.9 Difference 0.0-1.4-2.1-2.7-2.7-2.7-2.7 Cigarette Surcharge October 2013 843.8 826.0 811.5 799.3 787.3 775.5 763.8 February 2014 843.8 821.5 805.2 791.1 779.2 767.5 755.9 Difference 0.0-4.4-6.3-8.2-8.1-8.0-7.9 OTP Tax OTP Surcharge October 2013 70.1 69.5 71.2 72.6 73.7 74.4 75.2 February 2014 70.1 68.7 70.0 71.3 72.4 73.5 74.5 Difference 0.0-0.8-1.2-1.3-1.3-0.9-0.7 DISTRIBUTIONS Health Care Trust Fund October 2013 834.7 823.8 812.1 802.2 792.1 781.9 771.9 February 2014 834.7 819.0 805.2 793.4 783.5 773.7 764.0 Difference 0.0-4.8-6.9-8.8-8.6-8.2-7.9 General Revenue Service Charge October 2013 95.8 93.7 92.3 91.1 89.9 88.7 87.5 February 2014 95.8 93.2 91.5 90.1 89.0 87.8 86.6 Difference 0.0-0.5-0.8-1.0-0.9-0.9-0.9 General Revenue Excise Tax October 2013 173.7 157.3 154.4 151.9 149.5 147.1 144.7 February 2014 173.7 156.2 153.1 150.2 147.8 145.4 143.1 Difference 0.0-1.1-1.3-1.7-1.7-1.7-1.6 OTP General Revenue Tax Total GR Distributions October 2013 297.9 280.0 276.4 273.2 270.1 266.8 263.5 February 2014 297.9 278.0 273.8 270.1 267.0 263.8 260.8 Difference 0.0-2.0-2.6-3.1-3.1-3.0-2.7 All Other Funds October 2013 93.5 96.6 95.1 93.8 92.6 91.4 90.2 February 2014 93.5 96.1 94.5 93.0 91.8 90.5 89.3 Difference 0.0-0.5-0.6-0.8-0.8-0.9-0.9 Note: Adjustments were made to the FY 2013-14 estimates for Cigarette Tax, Cigarette Surcharge, and OTP Surcharge revenues to reflect the impact of $1.48 million in refunds granted associated with a court decision in MICJO, Inc v. DBPR Division of Alcoholic Beverages and Tobacco.

Comparison of the October 2013 and February 2014 Forecasts COLLECTIONS Cigarette Tax October 2013 285.3 276.3 271.5 267.4 263.4 259.5 255.6 February 2014 285.3 274.9 269.4 264.7 260.7 256.8 252.9 Difference 0.0-1.4-2.1-2.7-2.7-2.7-2.7 Cigarette Surcharge October 2013 843.8 826.0 811.5 799.3 787.3 775.5 763.8 February 2014 843.8 821.5 805.2 791.1 779.2 767.5 755.9 Difference 0.0-4.4-6.3-8.2-8.1-8.0-7.9 OTP Tax OTP Surcharge October 2013 70.1 69.5 71.2 72.6 73.7 74.4 75.2 February 2014 70.1 68.7 70.0 71.3 72.4 73.5 74.5 Difference 0.0-0.8-1.2-1.3-1.3-0.9-0.7 DISTRIBUTIONS Health Care Trust Fund October 2013 834.7 823.8 812.1 802.2 792.1 781.9 771.9 February 2014 834.7 819.0 805.2 793.4 783.5 773.7 764.0 Difference 0.0-4.8-6.9-8.8-8.6-8.2-7.9 General Revenue Service Charge October 2013 95.8 93.7 92.3 91.1 89.9 88.7 87.5 February 2014 95.8 93.2 91.5 90.1 89.0 87.8 86.6 Difference 0.0-0.5-0.8-1.0-0.9-0.9-0.9 General Revenue Excise Tax October 2013 173.7 157.3 154.4 151.9 149.5 147.1 144.7 February 2014 173.7 156.2 153.1 150.2 147.8 145.4 143.1 Difference 0.0-1.1-1.3-1.7-1.7-1.7-1.6 OTP General Revenue Tax Total GR Distributions October 2013 297.9 280.0 276.4 273.2 270.1 266.8 263.5 February 2014 297.9 278.0 273.8 270.1 267.0 263.8 260.8 Difference 0.0-2.0-2.6-3.1-3.1-3.0-2.7 All Other Funds October 2013 93.5 96.6 95.1 93.8 92.6 91.4 90.2 February 2014 93.5 96.1 94.5 93.0 91.8 90.5 89.3 Difference 0.0-0.5-0.6-0.8-0.8-0.9-0.9 Note: Adjustments were made to the FY 2013-14 estimates for Cigarette Tax, Cigarette Surcharge, and OTP Surcharge revenues to reflect the impact of $1.48 million in refunds granted associated with a court decision in MICJO, Inc v. DBPR Division of Alcoholic Beverages and Tobacco. 1

Cigarette Tax and Surcharge Forecast February 2014 Cigarette Tax Cigarette Surcharge Packs % Cigarette Net GR AB&T County Rev Moffitt Biomedical General Cigarette GR Service Health Care (calculated) Change Tax Refunds Tax Service Charge Trust Fund Sharing PMATF Center Research TF Revenue Surcharge Floor Tax Charge Trust Fund 2003-04 1,252.9 0.6% 418.7 3.0 415.7 30.5 3.8 11.1 113.0 11.2 0.0 248.5 2004-05 1,314.2 4.9% 439.2 1.1 438.1 32.2 4.0 11.7 119.6 15.8 0.0 258.3 2005-06 1,284.7-2.2% 429.3 1.0 428.3 31.3 3.9 11.4 115.2 16.0 0.0 250.2 2006-07 1,259.4-2.0% 420.9 0.1 420.8 30.7 3.8 11.2 113.2 15.9 0.0 246.1 2007-08 1,232.5-2.1% 411.9 0.3 411.6 29.9 3.7 10.9 110.3 15.9 0.0 239.3 2008-09 1,252.4 1.6% 418.5 0.1 418.5 30.5 3.8 11.1 112.3 10.8 0.0 250.4 2009-10 959.7-23.4% 300.8 0.3 300.5 23.6 2.7 8.0 80.3 5.7 0.0 180.2 856.1 97.5 76.3 872.0 2010-11 920.3-4.1% 303.7 0.4 303.3 24.5 2.8 8.2 82.9 5.6 0.0 186.2 924.2 0.0 74.5 853.0 2011-12 860.1-6.5% 288.1 0.2 287.9 23.0 2.6 7.6 76.8 5.8 0.0 171.8 859.5 0.0 68.7 792.3 2012-13 846.3-1.6% 285.3 0.4 284.9 22.8 2.6 7.7 77.5 5.7 0.0 173.7 843.8 0.0 67.4 770.2 2013-14 Oct 2013 826.9-2.29% 276.3 0.3 276.0 22.1 2.5 7.3 73.7 10.6 2.5 157.3 826.0 0.0 66.1 759.9 Feb 2014 822.6-2.80% 274.9 0.7 274.3 21.9 2.5 7.2 73.2 10.6 2.5 156.2 821.5 0.0 65.7 755.8 2014-15 Oct 2013 812.4-1.75% 271.5 0.3 271.2 21.7 2.4 7.2 72.4 10.6 2.5 154.4 811.5 0.0 64.9 746.6 Feb 2014 806.1-2.00% 269.4 0.3 269.1 21.5 2.4 7.1 71.8 10.6 2.5 153.1 805.2 0.0 64.4 740.8 2015-16 Oct 2013 800.2-1.50% 267.4 0.3 267.1 21.4 2.4 7.1 71.3 10.6 2.4 151.9 799.3 0.0 63.9 735.4 Feb 2014 792.0-1.75% 264.7 0.3 264.4 21.2 2.4 7.0 70.6 10.6 2.4 150.2 791.1 0.0 63.3 727.8 2016-17 Oct 2013 788.2-1.50% 263.4 0.3 263.1 21.0 2.4 7.0 70.2 10.6 2.4 149.5 787.3 0.0 63.0 724.3 Feb 2014 780.1-1.50% 260.7 0.3 260.4 20.8 2.3 6.9 69.5 10.6 2.4 147.8 779.2 0.0 62.3 716.9 2017-18 Oct 2013 776.4-1.50% 259.5 0.3 259.2 20.7 2.3 6.8 69.2 10.6 2.4 147.1 775.5 0.0 62.0 713.5 Feb 2014 768.4-1.50% 256.8 0.3 256.5 20.5 2.3 6.8 68.5 10.6 2.3 145.4 767.5 0.0 61.4 706.1 2018-19 Oct 2013 764.7-1.50% 255.6 0.3 255.3 20.4 2.3 6.7 68.1 10.6 2.3 144.7 763.8 0.0 61.1 702.7 Feb 2014 756.8-1.50% 252.9 0.3 252.6 20.2 2.3 6.7 67.4 10.6 2.3 143.1 755.9 0.0 60.5 695.5 2

Other Tobacco Products Tax and Surcharge Forecast February 2014 Other Tobacco Other Tobacco Products Surcharge Total Products Tax Floor GR Service Health Care Revenue % change to GR Surcharge Tax Charge Trust Fund 2003-04 27.7 27.7 2004-05 29.0 4.7% 29.0 2005-06 27.5-5.2% 27.5 2006-07 33.1 20.4% 33.1 2007-08 32.7-1.2% 32.7 2008-09 28.5-12.7% 28.5 2009-10 81.4 185.2% 25.6 55.8 7.3 5.1 57.7 2010-11 91.0 11.7% 27.3 63.7 0 5.1 58.8 2011-12 93.5 2.8% 28.0 65.6 0 5.2 60.4 2012-13 98.5 5.3% 28.4 70.1 0 5.6 64.5 2013-14 Oct 2013 98.4-0.1% 28.9 69.5 0 5.6 63.9 Feb 2014 97.3-1.3% 28.6 68.7 0 5.5 63.2 2014-15 Oct 2013 100.9 2.5% 29.7 71.2 0 5.7 65.5 Feb 2014 99.2 2.0% 29.2 70.0 0 5.6 64.4 2015-16 Oct 2013 102.8 1.9% 30.2 72.6 0 5.8 66.8 Feb 2014 101.0 1.8% 29.7 71.3 0 5.7 65.6 2016-17 Oct 2013 104.4 1.6% 30.7 73.7 0 5.9 67.8 Feb 2014 102.6 1.6% 30.2 72.4 0 5.8 66.6 2017-18 Oct 2013 105.4 1.0% 31.0 74.4 0 6.0 68.4 Feb 2014 104.1 1.4% 30.6 73.5 0 5.9 67.6 2018-19 Oct 2013 106.5 1.0% 31.3 75.2 0 6.0 69.2 Feb 2014 105.5 1.4% 31.0 74.5 0 6.0 68.5 3

Monthly Tobacco Revenues 2013-14 Compared to October 2013 Estimate Cigarettes Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total Excise Tax Actual 21.6 22.4 23.9 21.8 22.5 24.3 30.6 167.1 Estimate 21.6 22.4 23.9 21.8 22.5 26.7 28.7 16.6 20.3 24.2 23.9 23.8 276.3 Difference 0.0 0.0 0.0 0.0 0.0-2.4 1.9-0.5 Surcharge Actual 64.5 66.5 71.4 68.7 66.7 71.6 90.5 500.0 Estimate 64.5 66.5 71.4 68.7 66.7 79.8 85.8 49.5 60.5 72.3 71.4 69.0 826.2 Difference 0.0 0.0 0.0 0.0 0.0-8.2 4.7-3.5 Total Actual 86.2 88.9 95.3 90.5 89.2 95.9 121.1 667.1 Estimate 86.2 88.9 95.3 90.5 89.2 106.5 114.5 66.1 80.8 96.5 95.3 92.7 1,102.5 Difference 0.0 0.0 0.0 0.0 0.0-10.6 6.6-4.0 Other Tobacco Products Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total Wholesale Tax Actual 2.1 2.8 2.0 2.2 2.1 2.0 2.6 15.8 Estimate 2.1 2.8 2.0 2.2 2.1 2.6 2.3 2.6 2.8 2.0 2.6 2.8 28.9 Difference 0.0 0.0 0.0 0.0 0.0-0.6 0.3-0.3 Surcharge Actual 8.5 6.9 5.4 0.5 5.0 4.5 7.2 38.0 Estimate 8.5 6.9 5.4 0.5 5.0 6.3 5.6 6.3 6.8 5.0 6.3 6.9 69.5 Difference 0.0 0.0 0.0 0.0 0.0-1.8 1.6-0.2 Total Actual 10.6 9.7 7.5 2.7 7.1 6.5 9.7 53.8 Estimate 10.6 9.7 7.5 2.7 7.1 8.9 7.9 8.9 9.6 7.0 8.9 9.6 98.4 Difference 0.0 0.0 0.0 0.0 0.0-2.4 1.8-0.5 4

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