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  • Feb 24, 2026
  • By WTVAPGO
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Nebraska Proposes Sharp Hikes in Cigarette and E‑cigarette Taxes: Two Bills Raise Concerns for Retailers

02-04 · tax policy · retail impact

Nebraska Proposes Sharp Hikes in Cigarette and E‑cigarette Taxes: Two Bills Raise Concerns for Retailers

LB1124 would boost cigarette tax from $0.64 to $1.64 per pack; LB1238 shifts to 30% wholesale tax and applies 30% to alternatives

Key takeaways

  • Two bills under consideration: LB1124 and LB1238 both seek to raise taxes on cigarettes, e‑cigarettes, and other nicotine products.
  • LB1124: proposes increasing Nebraska's cigarette tax from $0.64 to $1.64 per pack.
  • LB1238: would replace the fixed per‑pack tax with a 30% tax on retailers' purchase price; also raises the tax on alternative nicotine products from 20% to 30%, and applies the 30% rate to other tobacco products.
  • Economic impact debate: opponents argue the hikes would squeeze margins at small convenience stores, gas stations, and vape shops — especially near state borders where cross‑border shopping and tax‑free sources could divert sales.
  • Tax fairness: critics emphasize the regressive nature of cigarette taxes, which disproportionately affect lower‑income smokers.

According to an article from Americans for Tax Reform, Nebraska lawmakers are debating two bills that would significantly increase taxes on cigarettes, e‑cigarettes, and other nicotine products. The proposals could raise costs for consumers and create new operating pressures for small retailers across the state.

LB1124 would hike Nebraska's cigarette tax from the current $0.64 per pack to $1.64 per pack — more than doubling the rate.

LB1238 takes a different approach: it would replace the fixed per‑pack tax with a 30% tax on retailers' purchase price. At the same time, it would raise the tax on alternative nicotine products from 20% to 30% and extend that 30% rate to other tobacco products.

The analysis suggests such tax increases could hit family‑owned vape shops, convenience stores, and gas stations that rely on revenue from these categories. Merchants with thin profit margins — especially those near state borders — might face increased competition from lower‑tax neighboring states and "tax‑free sources," potentially affecting local sales, jobs, and business stability.

The article also highlights the regressive nature of cigarette taxes. In Nebraska, smoking rates among those earning less than $25,000 per year (cited as approximately 28%) are significantly higher than among those earning $75,000 or more (cited as about 8.7%). Thus, a tax increase would fall more heavily on lower‑income individuals.

Fiscal and substitution concerns

  • From a revenue perspective, "raising cigarette taxes does not necessarily produce a corresponding increase in tax revenue." When rates jump sharply, the legal tax base may shrink faster than predicted, as consumers turn to cross‑border purchases, online channels, or illicit markets.
  • Taxing alternatives like e‑cigarettes could weaken the incentive to switch from traditional cigarettes to potentially lower‑risk alternatives.
  • LB1124 treats heated tobacco products the same as conventional cigarettes, overlooking technological differences (absence of combustion and potentially different exposure levels).

Source: 2Firsts, February 4, 2026 · based on reporting by Americans for Tax Reform · Image: Americans for Tax Reform

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