HENDERSON, Ky. — Indiana’s cigarette tax tripled on Tuesday, prompting Hoosiers to cross state lines into Kentucky for cheaper tobacco and boosting business for retailers like Trocadero Plaza in Henderson.

What You Need To Know

  • Effective July 1, Indiana raised its cigarette tax from $1 to $2.995 per pack, a 200% increase, to address a $2 billion budget shortfall

  • The tax hike has driven Indiana customers to Kentucky, where the cigarette tax is $1.10 per pack

  • Groups like the Foundation for a Healthy Kentucky and the American Lung Association have pushed for higher cigarette taxes in Kentucky to reduce smoking rates

  • Indiana convenience store owners warn the tax hike could lead to job losses and reduced state revenue as smokers buy cheaper tobacco in neighboring states like Kentucky and Ohio

The tax hike, aimed at addressing Indiana’s $2 billion budget shortfall, has sparked debate over its economic and health effects, while Kentucky retailers capitalize on their state’s lower $1.10 per pack tax.

Phil Van Allen, owner of Trocadero Plaza for 30 years, said his store, located just north of the Twin Bridges in Henderson, already sees an influx of customers from Indiana and even Illinois. 

“When you have tax advantages on stuff, and you’re a state line retail store, you’re gonna get people. I would think people are probably gonna drive 10 miles out of Evansville to save 20 bucks a carton,” Van Allen said. “Indiana’s actually had a lower tax rate than Kentucky the last several years, but they have a state minimum price that they require retailers to use, so that has made the difference in pricing a little bit more competitive in Kentucky.”

A test purchase by Spectrum News 1 highlighted the price disparity: a pack of Marlboro Black cigarettes cost $10.55 in Evansville, Indiana, compared to $6.47 at Trocadero Plaza in Kentucky.

As reported by the Indy Star, Indiana’s tax increase, the first in nearly two decades, was supported by advocacy groups like the American Lung Association and the Indiana Chamber of Commerce, who argue it will deter smoking and generate $800 million over two years for Medicaid. The group estimates 38,000 Indiana smokers may quit because of the tax hike.

However, Indiana convenience store owners warned lawmakers the tax increase could drive customers to neighboring states like Kentucky, where the tax is $1.10 per pack.

Health advocacy groups like the Foundation for a Healthy Kentucky, according to the Lexington Herald Leader, and the American Lung Association, as reported by our partner the Kentucky Lantern, have long pushed for a cigarette tax increase to reduce smoking rates, citing the state’s high lung cancer incidence.

Despite these efforts, no cigarette tax increase proposals are currently under consideration in Kentucky’s legislature.

Van Allen, whose family-owned business prides itself on low prices and loyal customers, remains unapologetic about capitalizing on the tax disparity.

“We’re selling a legal product, and who am I to tell people what they can and can’t do,” he said. “Any time you can sell something a little cheaper, whether it’s cars or tobacco, people will go out of their way to save a little money.”

As Indiana’s tax hike drives smokers across state lines, Kentucky retailers like Trocadero Plaza are poised to benefit.

Related Stories