Prop 56 & The OTP Excise Tax
What Is The Net Affect On The Tax Rate?
We explain all of this plus how has Prop. 56 has affected small cigars and changes with tax stamps.
What is Proposition 56?
California Proposition 56, The California Healthcare, Research and Prevention Tobacco Tax Act of 2016, was a ballot proposition that increased the cigarette tax by $2.00 per pack with equivalent increases on other tobacco products. Proposition 56 was passed on November 8, 2016 and became effective April 1, 2017.
How did Proposition 56 affect the OTP Tax rate?
Effective July 1, 2017, to meet the cigarette tax increase passed by Proposition 56, the California Other Tobacco Products (OTP) Excise Tax rate was raised from 27.30% to 65.08%.
How did Proposition 56 affect small cigars?
Proposition 56 expanded the definition of “tobacco products” under the California Cigarette and Tobacco Products Tax Law to include little or small cigars, which were previously considered to be classified as cigarettes for tax purposes.
Being that little or small cigars are now considered to be other tobacco products, many small cigars which were previously tax-stamped (therefore being taxed at the same rate as cigarettes at the time, which was 87 cents), are now considered other tobacco products and should therefore be taxed at the new California OTP excise tax rate of 65.08%.
What else is considered “Tobacco Products” under the California Cigarette and Tobacco Products Tax Law?
The following products are considered to be tobacco products and are subject to the California OTP Tax:
- Smoking or pipe tobacco (including shisha)
- Chewing tobacco
- Little Cigars
- Any product containing, made of, or derived from any amount of tobacco that is intended for human consumption.
- Any product containing, made of, or derived from any amount of nicotine that is intended for human consumption and sold with (for a single price) or without a delivery device or system.
- Electronic cigarettes or any device or delivery system sold in combination with nicotine (for a single price).
- Any component, part, or accessory of an electronic cigarette that is used during the operation of the device when sold in combination (for a single price) with nicotine (for example, a battery used in the operation of the device sold with nicotine for a single price).