SB 893 - HB 987
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
February 24, 2025
Fiscal Analyst: Bojan Savic | Email: bojan.savic@capitol.tn.gov | Phone: 615-741-2564
SB 893 - HB 987
SUMMARY OF BILL: Establishes that a “cigarette” under the Tobacco Tax Law includes a
“heated tobacco product” (HTP). Defines HTP as a product containing tobacco that produces an
inhalable aerosol by heating the tobacco by means of a device without combustion of the tobacco or
by heat generated from a combustion source that only or primarily heats rather than burns the
tobacco. Imposes a 0.15¢ per cigarette tax on HTP.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
FY25-26 $37,500
FY26-27 $75,100
FY27-28 $112,600
FY28-29 $150,200
FY29-30 & Subsequent Years $187,700
Assumptions:
• The proposed legislation does not authorize the sale of HTPs in Tennessee. Such sale is
already authorized. However, HTPs are currently not widely available for sale in the state.
This fiscal analysis assumes that the prevalence of such products will steadily increase over
the upcoming years.
• Philip Morris International’s IQOS devices and heated tobacco sticks are the most
prevalent HTPs globally. According to the Philip Morris International 2024 Consumer
Analyst Group of New York presentation, the following represents the share of IQOS sales
in select countries since 2019:
2019 2021 2023
Japan 16.6% 21.1% 26.7%
Greece 10.5% 15.8% 20.8%
Italy 6.1% 12.7% 17.1%
Germany 1.6% 3.4% 5.6%
UK 0.6% 2.4% 3.9%
Sweden 0.5% 1.8% 3.2%
Spain 0.8% 1.3% 2.4%
SB 893 - HB 987 2
• The information above represents the total in-market sales volume of IQOS units as a
percentage of the total estimates sales volume for cigarettes. Based on this information the
following is assumed to be the prevalence of HTPs in Tennessee:
FY25-26 FY26-27 FY27-28 FY28-29 FY29-30+
Tennessee 0.5% 1.0% 1.5% 2.0% 2.5%
• Total cigarette tax collections were $169,828,201 in FY23-24. The Fiscal Review Committee
staff estimates cigarette tax collections to decrease by 4.54 percent in FY24-25 and by 4.28
percent in FY25-26. Therefore, the total cigarette tax collections in FY25-26, under current
law, are estimated to be $155,179,350 [$169,828,201 x (100%-4.54%) x (100%-4.28%)].
• The implicit number of cigarettes sold in FY25-26 is estimated to be 5,005,785,484
($155,179,350 tax collections / $0.031 tax rate). This number is assumed to remain constant
into perpetuity under current law.
• Consumption of HTPs is assumed to impact consumption of cigarettes as evidence shows
that consumers of HTPs are generally not previous non-smokers. However, consumption
of HTPs is not a direct result of this legislation as the legislation does not impact the
availability or legality of such products. Therefore, any decrease in cigarette tax collections
due to the consumption shift from cigarettes to HTPs is not a result of this legislation.
• Additionally, the Department of Revenue confirms that HTPs are not considered cigarettes
under current law. Therefore, in the absence of this legislation HTPs would not be subject
to a relatively higher cigarette tax rate.
• Finally, the proposed legislation does not impact the applicability of the state and local sales
tax imposition on HTPs. Any state and local sales tax impact is therefore considered not
significant.
• The resulting estimated increase in state tax collections is as follows:
FY25-26 FY26-27 FY27-28 FY28-29 FY29-30+
HTP Prevalence 0.5% 1.0% 1.5% 2.0% 2.5%
# HTP Units 25,028,927 50,057,855 75,086,782 100,115,710 125,144,637
Tax Rate per Unit $0.0015
Collections $37,543 $75,087 $112,630 $150,174 $187,717
• The department will accommodate any administrative tasks to accomplish the requirements
of this legislation utilizing existing resources, without a significant increase in state
expenditures.
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IMPACT TO COMMERCE:
BUSINESS IMPACT
FISCAL YEAR EXPENSES
FY25-26 $37,500
FY26-27 $75,100
FY27-28 $112,600
FY28-29 $150,200
FY29-30 & Subsequent Years $187,700
Assumptions:
• The proposed legislation imposes a 0.15¢ per cigarette tax on HTPs. The resulting increase
in business expenses is as follows:
FY25-26 FY26-27 FY27-28 FY28-29 FY29-30+
Expenses $37,543 $75,087 $112,630 $150,174 $187,717
• Any impact on jobs in this state is estimated to be not significant.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director