Nebraska Lawmakers Consider Higher Taxes on Nicotine Products
Two bills are under consideration in Nebraska that would increase taxes on nicotine-related products. LB1124 proposes raising the cigarette tax from $0.64 per pack to $1.64 per pack, while LB1238 proposes changing the cigarette tax to 30% of the retailer’s purchase price and increasing the tax rate on alternative nicotine products and other tobacco products to 30%. Concerns have been raised that these measures could increase consumer costs, exacerbate cross-border purchasing and illegal market risks in border areas, and place greater operational pressure on small retailers such as convenience stores, gas stations, and vape shops.
Key Points at a Glance
- Two bills—LB1124 and LB1238—both involve increasing taxes on cigarettes, vapes, and other nicotine products.
- LB1124: Proposes increasing the Nebraska cigarette tax from $0.64 per pack to $1.64 per pack.
- LB1238: Proposes replacing the current fixed per-pack tax with a 30% tax based on the retailer’s purchase price and raising the tax rate on alternative nicotine products from 20% to 30%, with other tobacco products also taxed at 30%.
- Economic Impact Controversy: Opponents argue the measures would squeeze profits at small convenience stores, gas stations, and vape shops, while border areas could face increased competition from lower-tax neighboring states and diversion to tax-free sources.
- Tax Fairness: Critics emphasize that cigarette taxes are regressive and disproportionately affect low-income smokers.
Americans for Tax Reform Highlights Legislative Debate
According to an article published by Americans for Tax Reform on February 4, 2026, Nebraska lawmakers are debating two proposals that would significantly raise taxes on cigarettes, vapes, and other nicotine products, potentially increasing consumer costs and operational pressures for small retailers.
Details of LB1124: Proposed Cigarette Tax Increase
LB1124 proposes increasing Nebraska’s cigarette tax from the current $0.64 per pack to $1.64 per pack, representing more than a doubling of the existing tax rate.
Details of LB1238: Shift to Percentage-Based Taxation
LB1238 proposes replacing the current fixed per-pack cigarette tax with a 30% tax based on the retailer’s purchase price. The bill would also raise the tax rate on alternative nicotine products from 20% to 30% and apply the same 30% rate to other tobacco products.
Impact on Small Retailers and Border Communities
The article argues that these tax increases could significantly affect family-owned vape shops, convenience stores, and gas stations that rely on nicotine product sales. Businesses operating on thin margins—particularly those near state borders—may face increased competition from neighboring lower-tax states and tax-free sources, potentially affecting local sales, employment, and long-term business viability.
Regressive Effects of Higher Cigarette Taxes
The article emphasizes the regressive nature of cigarette taxes, noting that in Nebraska, the smoking rate among individuals earning less than $25,000 annually (approximately 28%) is substantially higher than among those earning $75,000 or more (approximately 8.7%). As a result, tax increases would disproportionately burden low-income populations.
Fiscal Risks and Potential Revenue Shortfalls
From a fiscal perspective, the article argues that large cigarette tax increases do not necessarily translate into proportional revenue gains. When tax rates rise sharply, the legal tax base may contract more quickly than expected as consumers turn to cross-border purchases, online sales, or illicit markets.
Concerns Over Taxing Reduced-Risk Alternatives
The article also warns that higher taxes on alternatives such as vapes could weaken incentives for smokers to switch from traditional cigarettes to potentially lower-risk products. It further notes that LB1124 treats heated tobacco products the same as combustible cigarettes, overlooking differences in combustion processes and potential exposure levels.
