The Indiana cigar tax is 24% of the wholesale price, capped at $1 per cigar. The cap took effect on January 1, 2024. Distributors pay the tax when cigars enter the state, and the cost generally shows up in the shelf price. Indiana’s 7% sales tax then applies at the register on top of that.
The 24% Rate and the $1 Cap
Indiana treats cigars as “other tobacco products,” so the tax is a percentage of wholesale rather than a flat charge per stick. The rate is 24% of the wholesale price for every cigar distributed in the state.1Indiana General Assembly. Indiana Code Title 6 Taxation 6-7-2-7
Because 24% of an expensive cigar can run high, the tax is capped at $1 per cigar. When 24% of wholesale would exceed $1, the distributor pays only $1.1Indiana General Assembly. Indiana Code Title 6 Taxation 6-7-2-7 The cap begins to apply at a wholesale price of about $4.17. A $3 wholesale cigar carries $0.72 in state excise tax. A $20 wholesale cigar carries exactly $1.
What Counts as the Wholesale Price
The wholesale price is the net price on the invoice from the manufacturer to the distributor. Any discount or reduction that is not shown on the invoice itself is excluded, so off-invoice volume rebates do not shrink the taxable amount. A discount printed on the invoice does.2Indiana General Assembly. Indiana Code 6-7-2-6 – Wholesale Price
If a distributor also manufactures the cigars it sells, the wholesale price is the manufacturer’s list price at the time of the transaction.3Indiana Department of Revenue. General Tax Information Bulletin 206 – Other Tobacco Products Tax This number decides whether the straight 24% or the $1 cap applies, and auditors check it against invoices.
Federal Tax Is Already in the Price
Large cigars (those weighing more than three pounds per thousand) also carry a federal excise tax of 52.75% of the manufacturer’s sale price, capped at 40.26 cents per cigar.4Office of the Law Revision Counsel. 26 US Code 5701 – Rate of Tax The manufacturer or importer pays it before the cigars reach a distributor, so it sits inside the wholesale price that Indiana then taxes at 24%.
Sales Tax on Top
Indiana’s 7% state sales tax applies at the retail counter and is separate from the excise tax. So a cigar carries three layers by the time it reaches you: federal excise embedded in wholesale, Indiana’s 24% excise (up to $1), and 7% sales tax on the shelf price.
If You Distribute: License and Filing
You cannot distribute cigars in Indiana without a Tobacco Products Distributor’s License from the Indiana Department of Revenue. The application fee is $25 per location, and the license is valid for two years, is not transferable, and can be revoked or suspended.5Indiana General Assembly. Indiana Code 6-7-2-8 – Distributors License Distributors are generally required to post a surety bond, typically $1,000, which the department can adjust based on expected tax liability.
Returns are filed monthly through INTIME, the state’s online tax portal, and you must file even in months with no taxable activity.6Indiana Department of Revenue. User Guide for Alcohol, Cigarette, and Other Tobacco Products Tax Keep copies of filings and supporting invoices for at least three years.
Penalties Worth Knowing About
A retailer who buys cigars from a distributor without a valid Indiana license faces a penalty equal to the greater of 100% of the retail value of the product or $5,000.7Indiana Department of Revenue. Fines, Fees and Penalties The penalty hits the retailer, not just the unlicensed distributor, so verifying a supplier’s license status is worth the few minutes it takes.
Distributors who file late or underreport owe interest and additional penalties, and the department can suspend or revoke the license itself.5Indiana General Assembly. Indiana Code 6-7-2-8 – Distributors License Losing the license then triggers the unlicensed-operation penalties on top, which is why staying current on monthly filings is usually the cheapest path.