House Ways and Means Chairman Percy Watson said Friday that he’ll offer a cigarette tax compromise next week that “the Senate will have a hard time rejecting.”

Watson, a Hattiesburg Democrat, said he’s still working on the plan and didn’t disclose any details.

However, he did say the House wants to find a long-term solution to the declining balance in a state fund that gives drivers a discount when they buy or renew vehicle tags. The Senate has proposed directing a portion of the cigarette tax revenue to the fund for one year.

Negotiators from the House and Senate met Friday, but made little progress.

The House has passed a bill that increased the state’s cigarette excise tax by $1. The Senate version was 49 cents.

Republican Gov. Haley Barbour is recommending an increase of 24 cents a pack for premium cigarettes and 43 cents a pack on cigarettes produced by companies that didn’t participate in the state’s 1997 settlement of a lawsuit against the tobacco industry.

The current tax is 18 cents, the third-lowest in the nation.

Without a definitive figure, it’s difficult to calculate just how much revenue the state would receive from a tax hike. However, Senate Finance Committee Chairman Dean Kirby, R-Pearl, said he wants to use $25 million of the tax revenue generated in the first year for the state’s car tag fund.

The cost of a car tag in Mississippi varies by county. In some areas, the fee could be several hundred dollars on a new vehicle.

In 1994, officials increased the sales tax rate for cars and trucks and created a fund to hold a portion of the 5 percent vehicle sales tax. Money from the fund is diverted to the 82 counties to replace local taxes that are lost because of the tag-renewal discounts.

As vehicle sales have dropped, so has the fund balance.

“The Senate feels that if we’re going to have a tax increase, we’re going to give it back to the people,” Kirby said Friday.

Watson told the Senate members that he and his colleagues would return with a proposal on Wednesday. He said the two sides could find some common ground on the car tag issue.

“We think you’ll be inclined to accept it,” Watson told senators.

After their meeting, Watson said the House proposal would address the car tag situation “from a long-term standpoint.”

Lawmakers only have a few more weeks if they’re going to reach a deal on the cigarette tax as the 2009 Legislature ends on April 4.

There still appears to be no agreement on how much to raise the cigarette tax. Kirby said increasing the tax by $1 would be too hard on smokers’ pocketbooks as the federal tax on cigarettes also has risen by that much.

Watson said there’s no reason to pursue a tax this year if the amount is too low.

“If we want to play with this issue and pretend like we want to increase the tax, that’s one thing,” Watson said. “But if we really want to increase the tax, we know what to do.”