Excise tax increases are the most effective government intervention to increase the price of cigarettes, but cigarette manufacturers use trade discounts, coupons, and other promotions to counteract the effects of these tax increases and appeal to price-sensitive smokers. A summary of the results of that survey, which determined that 25 states had minimum price laws for cigarettes (median wholesale markup: 4.00%; median retail markup: 8.00%), and seven of those states also expressly prohibited the use of trade discounts in the minimum retail price calculation. To ensure that all state cigarette minimum price laws were identified, researchers reviewed all pricing laws in those states that appeared not to have a minimum price law.
MMWR Morbidity and Mortality Weekly Report State Cigarette Minimum Price Laws — United States, 2009 Cigarette price increases reduce the demand for the minimum retail price to consumers. Allowing cigarettes and thereby reduce smoking prevalence, trade discounts can partially reduce the price increases cigarette consumption, and youth initiation of smok- from taxes and minimum markups, which leads to a ing (1,2). Excise tax increases are the most effective lower minimum price (Table 1). government intervention to increase the price of To conduct this survey, CDC researchers first cigarettes (1), but cigarette manufacturers use trade reviewed eight known cigarette minimum price stat- discounts, coupons, and other promotions to counter- utes (6) for Boolean search terms that would identify act the effects of these tax increases (3) and appeal to all other such statutes in a database of current statutes price-sensitive smokers (4). State cigarette minimum for all 50 states and DC. Identified statutes were then price laws, initiated by states in the 1940s and 1950s analyzed to determine 1) the minimum percentage to protect tobacco retailers from predatory business markup that must be applied to cigarette prices by practices (5,6), typically require a minimum percent- wholesalers and/or retailers, or the actual minimum age markup to be added to the wholesale and/or retail price required by the law; 2) whether the statute price. If a statute prohibits trade discounts from the allows or prohibits trade discounts to be considered minimum price calculation, these laws have the poten- in calculating minimum price; and 3) the state agency tial to counteract discounting by cigarette manufac- or officer with regulatory enforcement authority. To turers (5). To assess the status of cigarette minimum ensure that all state cigarette minimum price laws were price laws in the United States, CDC surveyed state identified, researchers also reviewed all pricing laws statutes and identified those states with minimum in those states that appeared not to have a minimum price laws in effect as of December 31, 2009. This price law. When a statute indicated that wholesal- report summarizes the results of that survey, which ers must apply a minimum percentage markup for determined that 25 states had minimum price laws for transportation costs, that percentage was included in cigarettes (median wholesale markup: 4.00%; median the wholesale minimum markup. retail markup: 8.00%), and seven of those states also As of December 31, 2009, 25 states* had statu- expressly prohibited the use of trade discounts in the tory minimum prices for cigarettes (Table 2). The minimum retail price calculation. Minimum price minimum percentage by which these states required laws can help prevent trade discounting from eroding markup on the wholesale price of cigarettes ranged the positive effects of state excise tax increases and from 2.00% in DC, Louisiana, and Mississippi to higher cigarette prices on public health (5). 6.50% in Connecticut. The median required whole- Cigarette prices are increased by several factors, sale percentage markup among the 25 states was including 1) federal and state excise taxes, which are 4.00%. The minimum percentage by which states applied per pack of 20 cigarettes, and 2) percentage required a markup on the retail price of cigarettes markups by wholesalers and retailers (Table 1). All ranged from 6.00% in six states (Alaska, Louisiana, 50 states and the District of Columbia (DC) add a Mississippi, Oklahoma, Pennsylvania, and Wisconsin) state excise tax to the manufacturer’s invoice price to 25.00% in Massachusetts. The median required (7); the result is referred to as the manufacturer base retail percentage markup among the 25 states was price. In certain states, state cigarette minimum price 8.00%. The minimum price laws in Rhode Island and laws require the addition of a minimum percentage Washington did not require a percentage markup for markup by the cigarette wholesaler to the base price, either wholesale or retail; instead, the state statutes which results in the wholesale price. Most states with set the minimum price as the “replacement cost” minimum price laws also require the addition of a and “actual price paid,” respectively. Additionally, minimum percentage markup by the cigarette retailer Delaware was the only state with a minimum price (6). The result is the minimum retail price charged for wholesalers but not for retailers, and Tennessee to the consumer. The cigarette minimum price laws was the only state with a minimum price for retailers in some states also expressly allow or prohibit trade but not for wholesalers. discounts (i.e., reductions in price) from cigarette * For this report, DC is included among states. manufacturers to wholesalers or retailers in calculating MMWR / April 9, 2010 / Vol. 59
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