1. Local Taxation and Regulation Impacts the State
Rae Ann Kelsch and Jennifer Mann

2. Topics Localities Adopting Taxes and Regulations
Dillon and Home Rule – Local Control
Local Tobacco Taxation
Local Tobacco Regulation

3. Localities Take Action

4. Philadelphia Soda Tax 1.5-cent-per-ounce tax on sweetened beverages
24 times PA excise tax rate on beer1
Includes diet drinks
Effective 1/1/2017
Expected to raise $72 million in revenue
Originally pitched to fund pre-K education
1 Drenkard, S. Soda Tax Experiment Failing in Philadelphia Amid Consumer Angst and Revenue Shortfalls. Retrieved August 3, 2017, from

5. Philadelphia Soda Tax Results
Will likely fall $6.7 million short of projections
Just 49% of the soda tax revenues go to local pre-K programs1
20 percent funds government employee benefits or city programs
Remainder funds parks, libraries and community schools
Hurting low-income earners the most2
1 Drenkard, S. Soda Tax Experiment Failing in Philadelphia Amid Consumer Angst and Revenue Shortfalls. Retrieved August 3, 2017, from
2 Gunlock, J. (2017, February 2). Philly’s Drink Tax Is Hurting Consumers, Businesses, and the Poor. Retrieved August 10, 2017, from

6. Local Tobacco Taxation

7. Local Control – Home Rule and Dillon Rule
The U.S. Constitution does not mention local governments
Local governments are creations of the state governed by state constitutions
Home Rule – A municipality has the authority to tax and regulate unless expressly preempted or restricted
Dillon Rule - A municipality may exercise only those powers expressly conferred by the state in statute

8. Tobacco Control Legal Consortium Home Rule and Dillon Rule – Tobacco Taxation

9. Cigarettes Taxed at the Local Level in 8 States
Within these taxing jurisdictions the rates range from $0.01 to $3.00 per pack

10. Local Excise Tax States
In total, for 2016 there were 615 sub-state taxing bodies for this type of tax
These municipalities have raised more than $469 million dollars
State
Cities
Counties
Alabama
306 52
Alaska 12
Illinois 4 1
Missouri
128 2
New York
Ohio
Pennsylvania
Virginia
105

11. Philadelphia and Pennsylvania Cigarette Taxes

12. Sequence of Events
Pennsylvania legislators voted to give Philadelphia local authority to institute a cigarette tax in September 2014
Philadelphia instituted a $2/pack local cigarette excise tax in October 2014
Pennsylvania adopted a $1/pack cigarette excise tax increase in August 2016

13. Philadelphia Cigarette Tax
$2-per-pack tax to fund city education
Effective October 1, 2014
Any revenue shortfall to be backstopped by state
City Controller's Office January 2017 report
Predicts $26 million shortfall
$5 million below the School District's budgeted projection of about $54 million

14. Philadelphia Cigarette Tax Results
Philadelphia cigarette volume declined by 57%
Pennsylvania cigarette volume declined by 4.9%
Philadelphia cost the state more than 1.1 million cartons in the first year, or $17.9 million in revenue

15. Pennsylvania Cigarette Tax
$1-per-pack tax
Effective August 1, 2016
Pennsylvania cigarette prices were competitive with surrounding states prior to the tax increase

16. Pennsylvania Cigarette Tax Results
Pennsylvania lost nearly 8 million cartons of volume to surrounding states and beyond
Lost roughly $200 million in revenue
Consumers either started crossing the border into Delaware and West Virginia, or stopped coming to Pennsylvania to purchase cigarettes

17. Pennsylvania Border Retail
It’s clear that counties on the border adjoining states benefited from Pennsylvania’s cigarette tax increase

18. Local Tobacco Regulation

19. Local Government Authority over Tobacco  Advertising, Licensure, Smoke-free Indoor Air and Youth Access
There are several areas where local government has taken action, I will focus on the tobacco industry. For specifics on other areas of local authority we suggest you reach out to your state’s Attorneys General’s office.
Source: Centers for Disease Control

20. Restrict flavored tobacco products
Increasingly, municipalities are adopting local regulations restricting tobacco products
Reduce number of retail tobacco licenses
Restrict tobacco sales near youth facilities
Restrict tobacco coupons/discounts
Increase tobacco purchase age to 21

21. Recent Local Activity Chicago, IL
Flavored tobacco ban within 500 ft. of high schools
Increase age of purchase to 21
Other tobacco product (OTP) tax
San Francisco, Oakland and Contra Costa County, CA
Flavored tobacco sales ban, including e-cigarettes
Minneapolis and St. Paul, MN
Flavored tobacco ban, including e-cigarettes

22. Menthol Cigarette Bans – California Case Study
Menthol / flavored cigarettes make up 26% of California’s cigarette volume, or 219,526,060 packs
If banned by all localities, the state would lose $630 million in revenue from lost menthol cigarette sales alone
What if…
Every California county banned menthol cigarettes
No one crossed a border to buy menthol cigarettes
No one switched to non-flavored cigarettes
No one purchased menthol cigarettes online or illegally
No one mentholated their own cigarettes

23. Conclusion

24. Conclusion Local taxation and regulation is on the rise
Localities increasingly have a need to raise revenue
Localities have the potential to negatively impact state revenue and the economy
Many unintended consequences
Potential for patchwork of tax and regulations pitting city against city
Creates winners and losers for business
Potential criminal tobacco trafficking / increased crime
Creates food deserts when urban stores go out of business