Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Hickey
LAST UPDATED
ORIGINAL DATE 1/31/2025
SHORT TITLE
Increase Cigarette & Tobacco Products
Taxes
BILL
NUMBER Senate Bill 20
ANALYST Gray
APPROPRIATION*
(dollars in thousands)
FY25 FY26
Recurring or
Nonrecurring
Fund
Affected
$500.0 Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
Cigarette
Tax
$0.0 ($8,300.0) ($7, 800.0) ($7,600.0) ($7,400. 0) Recurring General Fund
Cigarette
Tax
$0.0 $100.0 $100.0 $100.0 $100.0 Recurring
UNM Cancer
Center
Cigarette
Tax
$0.0 ($600.0) ($600.0) ($50 0.0) ($500.0) Recurring
UNM Health
Sciences
Center
Cigarette
Tax
$0.0 $40.0 $50.0 $50.0 $50.0 Recurring
New Mexico
Finance
Authority –
DOH
Cigarette
Tax
$0.0 ($500.0) ($400.0) ($40 0.0) ($400.0) Recurring
New Mexico
Finance
Authority –
DOH
Cigarette
Tax
$0.0 $100.0 $100.0 $100.0 $100.0 Recurring
Rural County
Cancer
Treatment
Fund
Cigarette
Tax
$0.0 $21,400.0 $21,0 00.0 $20,400.0 $19,900.0 Recurring
Nicotine Use
Prevention and
Control Fund
Tobacco
Products
Tax
$0.0 $800.0 $1,800.0 $3, 200.0 $5,200.0 Recurring General Fund
Tobacco
Products
Tax
$0.0 $23,000.0 $26,3 00.0 $30,900.0 $37,000.0 Recurring
Nicotine Use
Prevention and
Control Fund
Total $0.0 ($7,500.0) ($6,00 0.0) ($4,400.0) ($2,200.0) Recurring General Fund
Total $0.0 $45,400.0 $47,700.0 $51,900.0 $57,400.0 Recurring
Nicotine Use
Prevention and
Control Fund
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
Senate Bill 20 – Page 2
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected TRD $161.0 $6.6 No fiscal impact $167.6 Nonrecurring General Fund
DOH No fiscal impact $100.0 $100.0 $200.0 Recurring General Fund
HED No fiscal impact
Indeterminate
but minimal
Indeterminate
but minimal
Indeterminate
but minimal
Recurring General Fund
RLD No fiscal impact $500.0 $500.0 $1,000.0 Recurring General Fund
Total $161.0 $606.6 $600.0 $1,367.6 Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Taxation and Revenue Department (TRD) Regulation and Licensing Department (RLD)
Department of Health (DOH)
Higher Education Department (HED)
Agency Analysis was Solicited but Not Received From
Public Education Department (PED)
SUMMARY
Synopsis of Senate Bill 20
Senate Bill 20 (SB20) raises the tax on cigarettes and tobacco products. The bill also changes the
distribution of cigarette and tobacco tax revenues.
SB20 Tax Chan
ges
Product Current Tax Proposed Tax Percent Increase
Cigarettes $0.10 per cigarette $0.15 per cigarette 50%
Cigar
1
$0.50 per cigar $1.50 per cigar 200%
“Cheap” cigars
1
25 percent 37.5 percent 50%
Little Cigar $0.10 per cigar $0.15 per cigar 50%
E-liquid 12.5 percent 67.5 percent 440%
Closed-System Cartridges $0.50 per cartridge 67.5 percent varies by price
Other tobacco products 25 percent 67.5 percent 170%
1
Cigars that cost more than $2 are taxed at 50 cents per cigar. Cigars that are cheaper than $2 are taxed at 25
percent.
Source: LFC Analysis
Distribution changes
SB20 changes the distribution of both cigarette tax revenues and tobacco products tax revenues.
SB20 also creates the nicotine use prevention and control fund, administered by the Department
of Health (DOH) and subject to appropriation by the Legislature, to provide funds to develop
programs, educational materials, and social and traditional media advertising on nicotine use
prevention and control for persons five to 25 years of age. Senate Bill 20 – Page 3
SB20 Cigarette and Tobacco Products Tax Revenue Distribution Changes
Revenue Type Fund/Beneficiary
Current Proposed
Cigarette Tax
Revenues
General fund 79.81% 55.76%
UNM Cancer Center (7-1-6.11 (A)) 0.71% 0.71%
UNM Health Sciences Center (7-1-6.11 (B)) 7.52% 5.5%
New Mexico Finance Authority - DOH
(7-1-6.11 (C))
3.17% 2.7%
New Mexico Finance Authority - credit enhancement fund
(7-1-6.11 (D))
8.26% 6.3%
Rural County Cancer Treatment Fund (7-1-6.11 (E)) 0.53% 0.53%
Nicotine Use Prevention and Control Fund
(7-1-6.11 (F))
new 28.5%
Tobacco Products
Tax Revenues
General fund 100% 35%
Nicotine Use Prevention and Control Fund
(7-1-6.11 (F))
new 65%
Definition Changes
The bill changes the definition of an e-cigarette from:
any “electronic oral device” that uses a heating element and a battery to provide a vapor
of nicotine or any other substance that simulates smoking.
to:
a device that can be used to “deliver aerosolized or vaporized nicotine” to the user.
Appropriation
SB20 appropriates $500 thousand from the general fund to the Regulation and Licensing
Department (RLD) for licensure and enforcement duties.
The effective date of this bill is July 1, 2025.
FISCAL IMPLICATIONS
The appropriation of $500 thousand contained in this bill is a recurring expense to the general
fund. Although this bill does not specify future appropriations, providing funding to expand a
department’s duties creates an expectation the funding will continue in future fiscal years;
therefore, this cost could become recurring after the funding period.
SB20 is estimated to reduce total net general fund revenues by $7.5 million in FY26. The fiscal
impact is based on a Taxation and Revenue Department (TRD) estimate. The agency’s methods
are reflected below.
Methods
The agency applied an elasticity of -0.40 for cigarette consumption and assumed no substitution
impacts. TRD applied an elasticity of -0.05 for tobacco products consumption, and no cross-tax
elasticities were used. The agency notes that the consumption decrease could be higher because
age groups respond differently to tax and price increases due to variations between income
elasticities.
TRD also notes tax revenue could be impacted depending on how retailers choose to pass-
through taxes to consumers. The retailer’s decision may vary considerably depending on market
concentration and tax structures. The agency writes:
Studies show that when the industry overpasses a given tax increase to price, (i.e., Senate Bill 20 – Page 4
increases the price more than would be indicated by the increase in tax), tobacco
consumption decreases by a larger amount than it would under a 1:1 pass-through
scenario. In contrast, when the industry absorbs part of a given tax increase, tobacco
consumption decreases by a smaller amount compared to the case of a 1:1 scenario. Thus,
the extent of the pass-through may impact tax collections.
DOH notes that the agency would need to employ an FTE at a cost of $100 thousand annually to
“administer the fund and effectively provide interventions to promote tobacco cessation, prevent
tobacco use initiation, eliminate secondhand smoke exposure, and identify and eliminate
tobacco-related disparities.”
The Higher Education Department (HED) notes that it does not currently have the capacity to
develop the outreach required under SB20 and would require additional staffing. However, the
agency did not furnish an estimate of this cost. LFC staff believe HED could implement SB20
with minimal fiscal impact.
TRD estimates the nonrecurring administrative and IT changes required by this bill will cost
approximately $167 thousand in FY25 and FY26.
RLD writes:
RLD does not anticipate any direct fiscal impact to the Department if SB20 is enacted.
SIGNIFICANT ISSUES
Increasing the price of a good generally decreases the demand for that good. By increasing the
tax on cigarettes and tobacco products, it is expected that consumption of those products will
decrease.
However, the bill increases the tax on tobacco products more than it increases the tax on
cigarettes, which could shift consumption from tobacco products to cigarettes. TRD notes that
this could have a greater impact on younger New Mexicans who make up a larger share of e-
cigarette users and are more sensitive to price increases. LFC joins with TRD in encouraging
policymakers to consider the overall interaction of all taxes on vaping products, cigarettes, and
other tobacco products.
TRD notes:
New Mexico's current cigarette tax of $2 per pack is slightly above the national average
of $1.9. The proposal to increase the tax to $3 per pack would place the State close to the
80th percentile amongst the States, but still far from New York's $5.35 per pack.
Regarding tobacco products, New Mexico's position depends mainly on the type of
product. For example, New Mexico taxes little cigars more heavily than Utah but less
than Arizona. However, the overall proposed tax rate increases would place New Mexico
above its neighbors.
Large increases in taxes may encourage consumers to buy products on the black market, which
raises safety and quality concerns.
DOH notes “smoking-related health care costs are estimated at $981 million per year and
smoking-related losses in productivity at $1.5 billion per year.” According to the federal Centers Senate Bill 20 – Page 5
for Disease Control, tobacco remains the leading cause of preventable death and disability
among New Mexicans. Nearly 2,630 people die from tobacco use annually in the state, according
to the agency.
Agency analysis from DOH asserts that SB20 would promote sustainability of current and future
nicotine prevention and control efforts in the state. “These efforts could help decrease morbidity
and mortality associated with tobacco product use,” the agency writes. “Additional funding
would help expand the current program activities and increase their reach.”
DOH notes:
Data has shown that increasing taxes on cigarettes results in fewer youth starting to
smoke and more adults quitting. Every 10% increase in the price of cigarettes reduces
consumption by about 4% among adults and about 7% among youth.
TECHNICAL ISSUES
TRD notes two technical issues.
On page 7, lines 17-25 and page 8, lines 1-6, the definition of “e-cigarette” does not
include a “battery or battery charger” as detailed on page 8, lines 5-6. Many e-cigarettes
(vape pens) are purchased as a “set” in which the box will include the cartridge, the
battery contained within the vape pen, a mouthpiece, and the battery charger (these boxes
may also include a storage case). The bill does not include any methodology for
computing the value of the battery or battery charger to deduct from the product's
wholesale price. Furthermore, there are lower and high-end vape pens, and with no
methodology to deduct the battery accessories taxpayers may apply different deduction
amounts. TRD recommends removing the following language on page 8, lines 5 and 6,
“but does not include a battery or battery charger.”
On page 8, lines 7-9, the definition of “e-liquid” has been amended to remove “not
including any substance containing cannabis or oil derived from cannabis.” It is unclear
what the bill intended when removing this language. TRD suggests the following
definition: “e-liquid means liquid or other substance containing nicotine intended for use
in an e-cigarette.”
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
BG/hj/sgs