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Department of Health backs cigarette, cigar tax increases; retailers and wholesalers urge caution
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Summary
State staff and the Department of Health described the governor's Article 5 proposal to raise the cigarette tax 75¢, eliminate the distributor stamp discount and lift the cigar cap to $2, estimating roughly $8 million in FY2027 revenue; convenience-store and cigar-industry witnesses warned the increases could drive cross-border and online sales and shrink local collections.
Sharon, a Finance Committee staff presenter, told the House Committee on Finance that the governor's Article 5 would raise the cigarette tax 75¢ per pack, taking the state tax from $4.50 to $5.25 and making the change effective Sept. 1, 2026. The proposal also would eliminate a distributor stamp discount and raise the cap on the other-tobacco-products (OTP) cigar tax from $0.50 to $2, staff said. Committee documents project roughly $6.6 million from the cigarette component and an additional $6.6 million from the OTP/cigar change in FY2027, with the packaged tobacco measures collectively contributing about $8 million to the governor's budget estimate.
Joe Cadiga, the state budget officer, reiterated staff's revenue projections and introduced Neil Heitinen from the Rhode Island Department of Health, who urged the committee to support the tobacco-tax increases on public-health grounds. "Tobacco use remains the leading cause of preventable death and disease in the United States and Rhode Island," Heitinen said, noting national and state figures cited to the committee (about 490,000 tobacco-related deaths nationally and roughly 1,800 Rhode Islanders annually). Heitinen also told members the state's annual health-care costs directly caused by smoking are about $744 million, with roughly $233 million paid by Medicaid.
Industry witnesses strongly opposed the proposed changes. Peter Brennan, executive director of the New England Convenience Store and Energy Marketers Association, said raising the cigarette tax would push consumers to buy across the border and shift ancillary sales away from Rhode Island retailers. "If you increase the cigarette tax by so much that people are now encouraged to go to Massachusetts, to Connecticut, ... that's very bad for retailers in Rhode Island," Brennan testified.
Cigar retailers and wholesale representatives described similar concerns for premium cigars and the OTP changes. Witnesses recounted the state's 2004 experience with a 50¢ cap that they said preserved retail business and warned that large increases would drive sales online or out of state. "When you take a 300% increase on a premium cigar, the only result is you're going to drive business out of state," said one broker who testified to the committee.
Retail owners and wholesalers told the committee that online sellers often do not collect Rhode Island taxes because of federal thresholds and enforcement limits, leaving the purchaser technically responsible to self-report tax obligations. Those witnesses urged the committee to preserve the existing $0.50 cap for cigars or otherwise limit the economic impact on small businesses.
No formal action was taken in the hearing; staff and administration witnesses said they would provide additional examples and collections data on request, and committee members asked staff for enforcement and cross-border-impact information going forward.
