State Cigarette Minimum Price Laws - United States, 2009 by ProQuest


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									                                 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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