Indiana's cigarette tax will triple on July 1. Businesses say Hoosiers will spend money elsewhere

Indianapolis Star

19 hours ago

When Indiana lawmakers earlier this year approved an increase in the state's tobacco taxes to help plug a $2 billion budget shortfall, they did so at the objection of hundreds of businesses across the state.
The 200% tax bump, which goes into effect on July 1, worried convenience store owners who warned state lawmakers in April that increases could hurt the state and local economies.
'Raising the cigarette tax will not reduce smoking but will drive consumers across state lines to purchase cigarettes at lower prices, which negatively impacts sales of responsible small Indiana business owners,' store owners wrote in a letter provided to IndyStar.
Advocacy groups, such as the American Cancer Society and the Indiana Chamber of Commerce, have long supported an increase in the tobacco tax to encourage Hoosiers to avoid or quit smoking and bring in additional state revenue. The measure been proposed by the Indiana House in the past, but efforts have fallen short in the Senate.
Not in 2025. Indiana lawmakers and Gov. Mike Braun signed off on raising the cigarette tax by $2 a pack, which takes the state's cigarette taxes from around $1 to $3 a pack. Taxes on other tobacco products, such as cigars and e-cigarettes, will also rise. Legislative leaders, when unveiling the tax increase in the final days of the session, said they expect it to raise roughly $800 million over the two-year budget cycle, helping fund the state's Medicaid costs.
"Along with revenue comes a really pretty good public policy that was going to help persuade people to either not start smoking or stop smoking at the same time," Indiana Sen. Pro Tempore Rodric Bray, R-Martinsville, said in April.
But some convenience store owners say the tax increases could lead to illegal distribution of tobacco products and drive customers out of state, which would hurt state revenues and local businesses. A 200% tax increase is also not reflective of the current economy, Scott Hackleman, the chief operating officer of Herdrich Petroleum, wrote in a late-April letter to Indiana lawmakers. Herdrich operates 20 QuickPix convenience stores, including four in Richmond at Indiana's border with Ohio.
'While the intent behind this increase may be well-meaning,' Hackleman wrote. 'It places a disproportionate financial burden on a small group of adult consumers, many of whom are already facing significant cost-of-living increases across the board.'
When Indiana's tax on cigarettes rises from just under $1 a pack to nearly $3 a pack on July 1, the Hoosier State will have the 12th highest state cigarette tax in the country and a higher rate than any of the states that touch its borders.
The taxes per pack of cigarettes for Indiana and its neighboring states starting July 1 are as follows, according to advocacy groups like the American Lung Association and the Campaign for Tobacco Free Kids:
Joe Lackey, the president of the Indiana Grocery and Convenience Store Association, said he believes the tax jump puts Indiana in a place to actually lose revenue as Hoosiers look to neighboring states to buy tobacco products. Residents from states like Illinois, who saw significantly higher cigarette taxes before Indiana's increase, may no longer see an incentive to drive to Indiana to purchase cigarettes.
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'We were the cheapest state and the surrounding states were much higher,' Lackey said. 'We were selling a lot of tobacco out of Indiana, and that meant that we were collecting a lot of taxes for the state of Indiana that was not coming from Hoosiers.'
Lackey said the state may see a revenue bump in June as Hoosiers make their last purchases at the current tax rate. But he worries that businesses may close or cut jobs in the months once the tax bump takes effect.
'We anticipate this is going to be a very devastating tax,' he said.
Contact IndyStar state government and politics reporter Brittany Carloni at [e-mail]. Follow her on Twitter/X @CarloniBrittany.