Get ready for $11-a-pack cigarettes

NEW YORK (CNNMoney.com) -- New York City smokers already pay the highest cigarette taxes in the nation, but a new state law will push those taxes even higher this summer.

The state legislature on Monday approved a bill adding a state tax of $1.60 to every pack sold, effective July 1. The bill, which was signed into law by Gov. David Paterson, will raise the state tax to $4.35 per pack. That makes the Empire State's tax on smokes the highest in the nation.

New York City smokers pay an additional municipal tax of $1.50 per pack, for a current total tax of $4.25 per pack. That's the highest state-local tax whammy in the country, according to the Campaign for Tobacco-Free Kids. Chicago is the runner-up, at $3.66 per pack.

The new tax increase means that smokers in the city will pay $5.85 per pack in taxes. That drives the average local price up to nearly $11 per pack, according to some estimates.

The tax hike is aimed at generating an additional $440 million in 2010-2011 tax revenue to support healthcare programs.

David Sutton, a spokesman for Altria Group (MO, Fortune 500), parent company for tobacco company Philip Morris, said he was "extremely disappointed" with the 63% increase that makes New York's cigarette tax "far and away the highest in the nation."

"This huge tax increase will make the present contraband cigarette crisis in New York State much worse," he said, in an e-mail to CNNMoney.com. "And it will likely not raise the revenue projected, as it will provide even greater incentives for consumers to purchase contraband cigarettes to avoid paying these extremely high taxes and will cause further loss of business to New York retailers selling state-taxed cigarettes."

The bill also requires that cigarettes sold at Native American reservations be taxed. State Sen. Jeffrey Klein, a Democrat representing parts of the Bronx and Westchester County, said that taxes on reservation-sold cigarettes will provide the state with $150 million in revenue during the remainder of 2010, followed by $500 million in annual revenue thereafter.

This will be a financial hit to tribes like the Shinnecock Indian Nation in Southampton, where several stores sell tax-free cigarettes.

"We've had very preliminary talks with not only Gov. Paterson but the Spitzer administration, so we knew this was coming and we're following it closely," said Randy King, chairman of board of trustees for the Shinnecock Indian Nation, which was recently recognized by the federal government. "We're just going to take the information back to the tribe and see what direction we get on how to approach it."