Yesterday, Gov. JB Pritzker passed a $56 billion budget deal, which included it in are multiple changes to how cigars are taxed in the state.
The good news is that beginning Jan. 1, 2027, there will be a 75-cent cap on the excise taxes for cigars, excluding little cigars. This will mean lower prices for virtually every handmade cigar sold in the state. The state has a tax rate of 45 percent of the wholesale price, which means—using industry standard margins—any cigar with an MSRP of greater than $3.32 should see some savings.
For example, a cigar with an MSRP of $9.50 currently pays $2.14 in state tobacco taxes. Effective Jan. 1, that will reduce to just 75 cents. For a consumer, that cigar is likely around $11.64 before sales tax, county tax and any retailer markup. Come Jan. 1, that $11.64 would reduce to $10.25.
The more expensive the cigar, the greater the savings.
There are a couple of important details. First, the tax cap is only temporary. Barring further legislation, it will expire at the end of 2029. Second, its impact is unlikely to be immediate. Come Jan. 1, the cigars in a retailer’s humidor will have likely been taxed using the uncapped rates. As new shipments come in, retailers will pay the new rate, which should reduce the prices consumers pay.
Cigar retailers in Illinois, but not necessarily Illinois consumers, got another win.
The bill also introduces a new remote seller tax policy. Going forward, any out-of-state retailer that, in one year, sells $100,000 or more of cigars, pipes and vaping products to consumers in Illinois will be considered a remote retail seller and will be required to pay Illinois’ excise taxes on those products. In addition, they will need to be licensed with the state, provide quarterly updates, and perform other bookkeeping.
For local retailers in Illinois, this move is seen as leveling the playing field between a local shop and an out-of-state retailer, which is unlikely to be charging the 45 percent excise tax. For Illinois consumers, this means that when ordering from the large online retailers, they are likely going to start seeing an additional 75-cent per cigar tax added to their orders. Currently, none of the four largest online cigar retailers list Illinois as a state that requires excise tax collection.
“We would like to thank our advocates in the Illinois legislature, which have stood behind such an action by passing this tax fairness measure for Illinois small businesses,” said Phil Ledbetter, owner of Up Down Cigars in Chicago, in a press release distributed by the Premium Cigar Association. “We would also like to thank the Premium Cigar Association, Cigar Rights of America and the Cigar Association of America for their support.”
That same press release says that this was the first time that a state has passed a tax cap following lobbying using specific analysis done by the Cigar Association of America and Premium Cigar Association that argues that there are benefits for the state passing a tax cap. It’s likely that the analysis pairs the tax cap with the tax parity laws, as lowering the tax rate via a cap would not increase tax revenue, barring a major uptick in consumption.
Overall Score
cigar taxes
Illinois
J.B. Pritzker
Remote Sales
retail
SB 3019
Taxes
