Written by Nick Jain.
This is an excerpt of the full analysis published by Nick Jain on Looking Closer. Read the full piece at: https://nickjain.com/blog/school-cigarette-tax
Philadelphia charges $2.00 a pack on top of federal and state taxes. It is not a city tax. It’s the School District of Philadelphia Cigarette Tax, and almost nobody who pays it knows the money is technically earmarked for public schools.
A pack of cigarettes in Philadelphia carries about $5.61 in tax. $1.01 of that is federal. $2.60 is Pennsylvania’s. The last $2.00 is the local tax.
That $2.00 is not, by law, a city tax, because cities are not allowed to tax cigarettes under PA state law. But section 19-1807 of the Philadelphia Code calls it the School District of Philadelphia Cigarette Tax. The money goes to the School District. If you buy a pack in the city, $2.00 of the price goes to the public schools (at least insofar that all money is fungible).
Unlike every other city in America that chooses to tax cigarettes, Philadelphia technically doesn’t. Instead, the Schools tax cigarettes. It is because Pennsylvania does not let cities tax cigarettes. The legislature decided decades ago that tobacco taxation is a policy choice that should be decided at the state level. Despite periodic pressure every decade or so, that state law hasn’t changed.
So back in 2014 when Philly needed money for its schools but couldn’t legally tax cigarettes, it needed to find a way around it.
Philly reached a compromise with the Commonwealth of Pennsylvania. Act 131 of 2014 is a state law that says the school districts of First Class cities in PA can have cigarette taxes… note that under PA state law, Philadelphia is the only first class city – Pittsburgh and Allentown aren’t. The PA legislature did not want to allow a general tobacco tax, but Philly schools were so broke that they gave this special earmarked law.
Estimates suggest the Philly Schools cigarette tax generates somewhere between $40 million and $80 million a year for the district, so about 1-2% of the total $4.6 billion budget.
The estimates for how much this tax matters is because the the tax is high enough to change where people buy their ciggies (since $2 is about a about a 40% tax on a typical $5 pre-tax pack of cigarettes), so people go outside Philly to gas stations or over to New Jersey to buy. Or buy loosies on the street (illegal, but it obviously happens)
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