Louisville, December 17, 2025
Indiana’s recent hike in cigarette taxes has led many smokers to travel to Kentucky for more affordable options. Indiana’s tax rose significantly, prompting cross-border shopping, boosting Kentucky retailers while impacting Indiana’s cigarette sales. Public health advocates view the tax increase as a win for reducing smoking rates, but it has created economic effects across state lines.
Louisville, Kentucky
Tax Hike in Indiana Sends Smokers to Kentucky for Cheaper Cigarettes
Indiana’s recent hike in cigarette taxes has led many smokers to cross the Ohio River into Kentucky to purchase less expensive cigarettes.
Indiana’s Tax Increase and Its Impact
On July 1, 2025, Indiana increased its cigarette tax from $1 to $2.995 per pack, marking the first tax hike in nearly two decades. This substantial rise aims to deter smoking and generate additional state revenue. Following the increase, cigarette tax collections in Indiana surged by $188 million, approximately three times higher than previous years. Additionally, the state’s Quit Now program experienced a 38% boost in enrollment during the first three months post-tax implementation.
Smokers Seeking Cheaper Alternatives in Kentucky
The tax disparity has prompted Indiana residents to seek more affordable options across the river in Kentucky. For instance, a carton of cigarettes in Indiana costs around $140, nearly double the price in Kentucky, where the tax is $1.10 per pack. This price difference has led to increased business for Kentucky retailers, with many customers from Indiana making regular trips to purchase cigarettes.
Public Health and Revenue Considerations
Public health advocates have praised the tax increase, viewing it as a strategy to reduce smoking rates and associated health issues. The American Lung Association, in partnership with the Tobacco Free Indiana Coalition, has commended the state legislature for the $2 per pack increase, emphasizing its potential to improve health outcomes and curb tobacco use.
Economists have also analyzed the financial implications. A report commissioned by the Richard M. Fairbanks Foundation estimated that a $2 per pack increase in Indiana’s cigarette excise tax would generate an additional $356.2 million in the first year. The report also projected significant public health benefits, including a reduction in youth smoking prevalence and a decrease in smoking-related deaths.
Conclusion
While Indiana’s cigarette tax increase aims to promote public health and generate revenue, it has inadvertently led to cross-border shopping in Kentucky, highlighting the complexities of tax policy and consumer behavior.
FAQ
- What is the new cigarette tax rate in Indiana?
- Indiana’s cigarette tax increased from $1 to $2.995 per pack on July 1, 2025.
- How has this tax increase affected smokers?
- Many Indiana residents are crossing the Ohio River into Kentucky to purchase cigarettes at lower prices due to the tax disparity.
- What are the public health implications of the tax increase?
- The tax increase is expected to reduce smoking rates and associated health issues, with projections indicating a decrease in youth smoking prevalence and smoking-related deaths.
- How has the tax increase impacted state revenue?
- Cigarette tax collections in Indiana have risen by $188 million, approximately three times higher than previous years, following the tax increase.
- What are the economic effects on neighboring states?
- The tax increase has led to increased cigarette sales in Kentucky, as Indiana residents seek more affordable options across the river.
Key Features
| Feature | Details |
|---|---|
| Tax Increase | Indiana’s cigarette tax increased from $1 to $2.995 per pack on July 1, 2025. |
| Smokers’ Response | Many Indiana residents are crossing the Ohio River into Kentucky to purchase cigarettes at lower prices due to the tax disparity. |
| Public Health Impact | The tax increase is expected to reduce smoking rates and associated health issues, with projections indicating a decrease in youth smoking prevalence and smoking-related deaths. |
| Revenue Impact | Cigarette tax collections in Indiana have risen by $188 million, approximately three times higher than previous years, following the tax increase. |
| Economic Effects on Kentucky | The tax increase has led to increased cigarette sales in Kentucky, as Indiana residents seek more affordable options across the river. |
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