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1 Mark Robyn, Border Zone Cigarette Taxation: Arkansas's Novel Solution to the Border Shopping Problem 1 (2009)

handle is hein.taxfoundation/ffbgixz0001 and id is 1 raw text is: FFISCAL April 2009 FACT No. 168 FACT Border Zone Cigarette Taxation: Arkansas's Novel Solution to the Border Shopping Problem By Mark Robyn On February 12, the Arkansas General Assembly passed legislation to increase the state's excise rates on all tobacco products. As required by the bill, on March 1 the cigarette tax went from 59 cents to $1.15 per twenty-pack. 1 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. A First in Cigarette Excise Taxation 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.2 Arkansas legislators are shrewdly acknowledging that cross-border shopping for low-tax cigarettes is a major problem for tax enforcement. To retain tax revenue and stop tax evasion, Arkansas has established a low-tax zone on its own side of the border. If this policy is successful in Arkansas other state legislatures may follow suit. To understand the rationale for this policy, the first of its

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