April 15, 2009 - Arkansas Governor Mike Beebe signed an $87.8 million tobacco-tax hike into law (Act 180 of 2009, formerly House Bill 1204), on Tuesday, February 17, 2009. As required by the bill, on March 1 the cigarette tax went from 59 cents to $1.15 per twenty-pack. But the same tax rate will not be enforced statewide. In a novel provision, the legislation, Act 180 of 2009, included a lower, variable rate for certain towns and stores located near the Arkansas border.
The new law states that whenever there are two adjoining towns separated by the state line, the cigarette tax in the Arkansas town is required to be equal to the cigarette tax in the adjoining town outside of Arkansas plus 3 cents, as long as the resulting tax rate is not greater than Arkansas's standard tax rate. According to the law, both towns must have a population of 5,000 or more for the town on the Arkansas side to qualify for the reduced tax rate. Similarly, the law provides that the excise tax on cigarettes sold in Arkansas within 300 feet of the state line, regardless of the area's population, be taxed at the bordering state's rate plus 3 cents if the resulting rate is lower than Arkansas's standard rate.
Reference: Border Zone Cigarette Taxation: Arkansas’s Novel Solution to the Border Shopping Problem by Mark Robyn, Tax Foundation, 4/9/2009.
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