Indiana minimum cigarette prices are set by the Cigarette Fair Trade Act at Indiana Code 24-3-2, which forbids wholesalers and retailers from selling below cost and defines “cost” through fixed markup percentages. For 2025 and after, the presumed markup is 4% of basic cost for distributors and 14% of basic cost for retailers, with basic cost itself including the state and federal cigarette taxes. Selling under that calculated floor is a Class A infraction, and the below-cost price itself is treated as evidence that the seller intended to injure competitors.1Indiana General Assembly. Indiana Code 24-3-2-3 – Sale at Less Than Cost; Penalty
How the Price Floor Is Calculated
The minimum legal price is built in layers. Each layer starts from the basic cost and adds a mandated percentage, so the shelf price a customer sees reflects the manufacturer’s invoice, the taxes, and two levels of markup stacked on top.
Basic Cost
Basic cost is the foundation for every calculation that follows. For a distributor, it is the invoice price paid to the manufacturer plus the full face value of all required state cigarette tax stamps. For a retailer, it is the price on the invoice from the distributor, again including the value of applicable tax stamps.2Indiana General Assembly. Indiana Code 24-3-2-2 – Definitions
Distributor Markup
A distributor’s presumed cost of doing business is 4% of the basic cost. If the distributor delivers to the retail location, the law presumes an additional cartage cost of 0.5% of basic cost. A distributor whose actual overhead is lower than 4% can try to prove it and argue for a reduced floor, but without that proof the 4% (plus cartage where applicable) is the enforceable minimum.2Indiana General Assembly. Indiana Code 24-3-2-2 – Definitions
Retailer Markup
The retailer’s presumed cost of doing business is 14% of basic cost for 2025 and every year after, the top of a schedule written into the statute that stepped up by a quarter point each year from 12%. That 14% is a presumption; a retailer can bring accounting evidence showing higher or lower actual overhead, but 14% is what the state will enforce absent that proof.2Indiana General Assembly. Indiana Code 24-3-2-2 – Definitions
A retailer that buys some product at wholesale terms cannot use that advantage to undercut the market. If a retailer purchases at both retail and distributor prices, the formula requires adding the distributor’s cost of doing business to the basic cost before applying the 14% retailer markup.
How Taxes Feed Into the Floor
Because taxes sit inside basic cost, they are marked up twice on the way to the shelf. Indiana imposes a state excise tax of $0.14975 per cigarette on standard cigarettes weighing no more than three pounds per thousand, which comes to $2.995 per pack of 20.3Indiana General Assembly. Indiana Code 6-7-1-12 – Rate of Taxation Heavier cigarettes carry a higher per-unit rate. The federal excise tax adds another $1.01 per pack of 20.4Alcohol and Tobacco Tax and Trade Bureau. Tax Rates A dollar of tax raises the base by a dollar, and the 4% and 14% markups then apply on top of that raised base.
Bundles, Coupons, and Promotions
The Act closes the obvious workarounds. When cigarettes are sold along with other items at a combined price, or when any gift, coupon, or concession is included in the deal, the combined selling price still cannot drop the cigarette portion below the seller’s cost.5Indiana General Assembly. Indiana Code 24-3-2-4 – Sale of Multiple Items at Combined Price There is no carveout for manufacturer-funded coupons or rebates. A convenience store cannot bundle a pack with a lighter or a drink at a package price that pulls the cigarette line below the floor, and a “buy one, get one half off” deal violates the Act if the effective per-pack price falls under cost.
When a Seller Can Go Below the Floor
The main practical exception is meeting competition. Under Indiana Code 24-3-2-7, a seller may match a competitor’s price in good faith, even if the matched price is below the seller’s own cost. The competitor’s price has to be legal. Matching an illegal below-cost price is not protected.
A general exceptions provision also sits at Indiana Code 24-3-2-6, and anyone relying on it should check the current statutory text before pricing a sale.6Justia. Indiana Code 24-3-2 – Cigarette Fair Trade Act
Penalties for Selling Below Cost
Enforcement runs through the Indiana Alcohol and Tobacco Commission, which the Act calls the “department.”7Justia. Indiana Code Title 24 Article 3 Chapter 2 – Cigarette Fair Trade Act The commission can adopt rules, run cost surveys, investigate complaints, and suspend or revoke a distributor’s registration certificate, which effectively ends that distributor’s ability to operate in Indiana.
Selling cigarettes below cost is a Class A infraction, and Indiana’s Class A infractions carry a judgment of up to $10,000.1Indiana General Assembly. Indiana Code 24-3-2-3 – Sale at Less Than Cost; Penalty Fines are deposited into the enforcement and administration fund under Indiana Code 7.1-4-10-1. Intent is not a real hurdle for the state: because a below-cost sale is itself treated as evidence of intent to injure competitors, a retailer cannot escape liability by claiming the discount was just a gesture of goodwill.
A Competitor’s Right to Sue
A business does not have to wait for the commission to act. Any person injured by a pricing violation, or threatened with injury from one, can go to court and seek an injunction to stop the illegal pricing.7Justia. Indiana Code Title 24 Article 3 Chapter 2 – Cigarette Fair Trade Act A smaller retailer being undercut by a chain has a direct courtroom remedy under the Act.