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Tax Gap of Heated Tobacco Products in the United States of America
IQOS was sold only in a few states before they were taken off the market. Based on the tax code in most states, it is likely that heated tobacco products would be taxed as cigarettes. Virginia, home to Altria (Philip Morris International in the US) and one of the states that sold IQOS before market removal, removed heated tobacco sticks from the cigarette category (which had existing language about sticks that were burned or heated). Heated tobacco products were then separately taxed at 45 cents per 20-pack, compared to the 60 cents per pack applied to cigarettes.
The federal tax for cigarettes varies for small (class A) and large cigarettes (class B). It is a specific excise of USD 1.0066 per pack of small cigarettes and USD 2.1138 per pack of large cigarettes.
Class A and B cigarettes are defined as weighing 3 lbs. or less per 1000 or more than 3 lbs. per 1000, respectively. If more than 6 ½ inches in length, the cigarettes are taxable pro-rata of the rate prescribed for small cigarettes, counting each 2¾ inches, or fraction thereof, as one small cigarette.
Cigarettes are also taxed at the local and state levels. As of January 1st, 2023, all states and several cities tax cigarettes in addition to the federal tax. Among the 50 states and the District of Columbia, the tax ranges from USD 0.170 per pack in Missouri to USD 4.350 per pack in Connecticut and New York. The median tax is USD 1.51 per pack and the average across states is USD 2.138 per pack. For the purpose of the tax maps, we use the median state tax.
Sources:
- US Department of the Treasury
- Federation of Tax Administrators (FTA): Tax Rates
- Federation of Tax Administrators (FTA): Federal Excise Tax Increase and Related Provisions
- CDC
Last updated Sept. 1, 2023