Nebraska lawmakers are reviewing two proposals that would significantly increase taxes on cigarettes, e-cigarettes, and other nicotine products. Critics argue the changes could raise consumer costs, increase cross-border purchases in nearby lower-tax states, expand illicit market risks, and place heavier operational pressure on small retailers such as convenience stores, gas stations, and vape shops.

Quick Takeaways

• Two bills under review: LB1124 and LB1238 both propose higher taxes on cigarettes, vaping, and other nicotine products.
• LB1124: Would raise Nebraska’s cigarette excise tax from $0.64 per pack to $1.64 per pack (more than doubling it).
• LB1238: Would replace the current “fixed per-pack tax” with a 30% tax on the retailer’s wholesale acquisition cost; it would also increase the tax on alternative nicotine products from 20% to 30% and apply the same 30% rate to other tobacco products.
• Economic impact debate: Opponents say the proposals could compress margins for small convenience stores, gas stations, and vape retailers—especially those near state borders—due to competition from lower-tax jurisdictions and “tax-free sources.”
• Tax fairness concerns: Critics emphasize cigarette taxes are often regressive, disproportionately affecting lower-income smokers.

What LB1124 Would Change

LB1124 proposes increasing Nebraska’s cigarette tax from 64 cents per pack to $1.64 per pack. This represents a jump of more than one dollar per pack and more than doubles the current rate.

What LB1238 Would Change

LB1238 would overhaul the way cigarette taxes are calculated. Instead of charging a fixed amount per pack, it would apply a 30% tax based on the retailer’s wholesale acquisition cost.

In addition, the bill would raise taxes on alternative nicotine products from 20% to 30%, and extend the 30% rate to other tobacco products as well.

Retailer Concerns: Border Competition & Operational Pressure

The commentary argues that steep tax increases could hit small, community-based retailers hardest—particularly convenience stores, gas stations, and family-run vape shops that rely on nicotine categories for meaningful revenue. Businesses with thin margins and locations near state lines may face greater exposure to cross-border shopping and competition from lower-tax states or “tax-free sources,” potentially impacting local sales, jobs, and business stability.

Regressivity: Who Bears the Burden?

Opponents also highlight the regressive nature of cigarette taxes. The article cites a disparity in smoking rates by income: it states that Nebraskans earning under $25,000 annually have a smoking rate of about 28%, compared with about 8.7% among those earning $75,000+. From this perspective, higher cigarette taxes may fall more heavily on lower-income groups.

Will Higher Taxes Increase Revenue?

On the fiscal side, critics argue that raising cigarette taxes does not necessarily produce an equal increase in tax revenue. When rates rise sharply, the legal tax base can shrink faster than projected as consumers shift to cross-border purchases, online channels, or illicit markets.

Vaping & Harm Reduction Debate

The commentary further argues that increasing taxes on e-cigarettes and other alternatives could weaken incentives for smokers to switch from combustible cigarettes to potentially lower-risk alternatives.

It also notes that LB1124 would treat “heat-not-burn” products the same as traditional cigarettes, despite differences in how these products operate (heating without combustion) and potential differences in exposure profiles.