On April 25, Indiana’s legislature passed House Bill 1001 — the state’s new biennial budget. Quietly tucked inside was a provision that should sound the alarm for anyone who still believes in limited government, economic freedom, and protecting small business from government overreach: a massive tax hike on premium cigars.
This new law hikes the OTP (Other Tobacco Products) tax on premium cigars from 24% to 30%, while tripling the per-cigar tax cap from $1 to $3. For many retailers, this isn’t a rounding error — it’s a back-breaking blow. And for many voters who believed they were sending pro-small business legislators to Indianapolis, it’s a slap in the face.
At a time when small businesses are hanging by a thread and inflation continues to choke working families, this tax hike isn’t just bad economics — it’s political malpractice. It’s a betrayal of principles that legislators were sent to the capital to protect taxpayers, not betray them.
It punishes mom-and-pop retailers, undermines consumer freedom, and expands the heavy hand of government under the false flag of “budget responsibility.” From Valparaiso to Jeffersonville, Fort Wayne to Evansville, Terre Haute to Richmond, businesses will be harmed. Indeed, this tax increase targets twenty-three family owned PCA members.
Premium cigars are not mass-market tobacco. They are artisan products, steeped in tradition, craftsmanship, and community. The FDA itself has acknowledged — through its own litigation losses — that premium cigars pose different health risks and consumption patterns. Yet Indiana lawmakers have lumped them in with products that bear no resemblance in either use or effect, all to cover a $2 billion budget shortfall.
Let’s be clear: this isn’t just a tax increase. It’s a signal — a warning — that Indiana’s supermajority is losing touch with its base. These are the very legislators who campaign on cutting red tape, opposing tax hikes, and supporting small business. Yet when it came time to make tough choices, they chose the path of least resistance: target a niche industry they assumed wouldn’t fight back.
But we will.
This isn’t a “minor adjustment.” It’s a deliberate burden placed on cigar shops — most of which are family-owned, often the anchor tenant on a struggling Main Street. For these shops, that $3 tax is added on top of federal excise taxes, state sales taxes, shipping costs, labor hikes, and insurance premiums. It’s not $3 — it’s death by a thousand cuts.
Republicans in Indiana have long claimed the mantle of being pro-business and pro-freedom. This budget shatters that illusion. It raises serious questions about whether this General Assembly is more interested in managing the decline of small business or in unleashing growth through real tax reform.
And it’s not just about cigars. If the state can arbitrarily target a politically disfavored product today, what’s next? Firearms? Alcohol? Red meat? This budget opens a dangerous door — a Pandora’s box that threatens every business not deemed politically correct or culturally fashionable. Today it’s cigar shops. Tomorrow, it could be yours.
Meanwhile, consumers will do what they’ve done in other high-tax states, and as a result, Indiana won’t raise near the projected level of revenue. Ohio has a $0.64 tax cap. Kentucky sits at 15%. Michigan’s cap is just $0.50. We want consumers to shop local and to stand behind their local small businesses, but we know how this act of the legislature affects customers, as well.
This is not just bad policy — it’s self-sabotage.
If Indiana’s legislators want to fix the state’s fiscal health, they need to do the hard work of governing — cutting waste, eliminating bloated programs, and promoting real economic growth. Instead, they chose to balance the budget on the backs of small business owners who already bear too much.
The Premium Cigar Association (PCA) will not stand by silently while the state betrays the very entrepreneurs who give Indiana its grit, character, and culture. We will fight this — in the legislature, and at the ballot box.
To the Governor and every lawmaker who supported this tax increase: your constituents are watching. Indiana’s small businesses deserve better. And come next session — and next election — we’ll be reminding voters exactly who stood with them, and who sold them out.
Let’s rack this up as a temporary lapse in judgement, and fix it in the 2026 session.
– Article contributed by the PCA Government Affairs team.