States are effectively cutting their own throats by continually hiking excise taxes on tobacco products–chasing away revenue, encouraging criminal behavior and unfairly penalizing smokers and retailers–and it’s up to the c-store industry to help them understand that.
In fact many operators and state associations already are fighting the good fight by lobbying legislators, educating consumers, disseminating research findings and in general insisting that their voices be heard and their interests be taken into account.
According to Arlington, Va.-based economic consultants William Orzechowski and Rob Walker, state excise taxes on tobacco totaled a staggering $14 billion in 2006.
“It’s over-taxation, and the legislators are killing the goose that’s laying the golden egg,” said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO).
“Hijacking a Marlboro truck can often be worth more than a Brinks truck,” said Gerald Prante, a senior economist with The Tax Foundation, a nonpartisan tax research group based in Washington.
“States are constantly seeking new sources of revenue, and cigarette tax always comes up as one that is politically more palatable,” noted Jim Calvin, president of the New York Association of Convenience Stores (NYACS). “There is always the political cover that it is designed to deter smoking, which would be true if the smoking population were a captive audience. Unfortunately, they are not, so any increase in the cigarette tax is only going to cost us more business and cost them more tax revenue. And it’s not going to compel anybody to stop smoking, so it’s a lose–lose–lose proposition.”
There is “an enormous problem here in New York with cigarette tax evasion,” Calvin continued. “More than half of cigarettes consumed by New Yorkers are purchased without payment of any New York State tax (for more, see pg. 64). That has caused extreme hardship for licensed tax collecting c-store operators, and an enormous loss of tax revenue for the state.”
The ironic part is that, in many cases, states may actually be losing money by raising taxes. For instance, the number of packs of cigarettes being sold in New Jersey, which has the highest tobacco excise tax in the nation at $2.57 per pack, has been steadily dropping, while neighboring Delaware’s has almost doubled.
Where are the dollars going? The winners are nearby states with lower taxes, bootleggers, Native American reservations and the Internet.
At best, tax increases are an imprecise tool. Case in point: all 50 states have excise taxes on cigarettes. But of the 40 that increased them between fiscal years 2003 and 2005, only eight met or exceeded revenue projections. Of the 32 that fell short, New Jersey missed by the largest margin, 67%, followed by Wyoming at 59% and Connecticut at 43%.
Next door in New York City, which imposes its own cigarette tax on top of the state’s, a Department of Health study last year found that 57% of smokers had purchased their cigarettes at least once from low-tax or no-tax sources and that more than one-third (37%) of smokers were purchasing low-tax or untaxed cigarettes regularly.
The issue, of course, goes beyond just dollars and cents. “I think an underreported angle is the vulnerability of retailers to robberies and burglaries as a result of higher excise taxes,” suggested Jeff Lenard, vice president of communications for NACS. “In many states, a carton of cigarettes (costs) more than a DVD player, and cigarettes carry a very high resale value on the black market.”
As a result, Lenard said, retailers are looking to better manage inventory “and to make sure that their stores are not targets. (Many) are redefining how they do business to be less reliant on tobacco sales.”
What can you do? Stand up and be heard.
“We’re in the heat of the battle as we speak,” said Leigh Faircloth, executive director of the South Carolina Association of Convenience Stores (SCACS) in Columbia. “Last year, our senate did something very unusual; they bypassed the typical process by which a bill (in this case, the cigarette tax bill) is heard in subcommittee. It’s the only point in which anyone from the public can provide testimony, so they effectively denied us the opportunity to have our say.”
The association responded by holding a “Retail Day” in January, marching 50 of its operator members down to the State House to lobby the senate to reinstate that part of the process. They succeeded: the bill was sent back to subcommittee, and the retailers are scheduled to appear before legislators this month. (The measure already passed in the state’s House last year.)
Fighting such proposals “is hard,” Prante conceded. “It’s a political game. Cigarette taxes are an easy political sell.” Oregon’s recent defeat of a proposed tax hike shows that the tobacco companies “are your biggest ally is in terms of opposing cigarette tax,” he added. Indeed, educational literature on the issue supplied by Philip Morris USA resulted in hundreds of thousands of calls and e-mails to legislators last year, according to spokesman Bill Phelps.
“This sounds very elementary, but (operators) need to contact their local state representatives and make their opinions known,” said Terry Lehman, senior vice president and chief operating officer for Li’l Cricket Food Stores Inc., a 90-store chain based in Charleston, S.C. “They need to emphasize the importance of cigarettes to our business, and the amount of taxes already collected by the state.”
Lehman, a past SCACS president¸ keeps informational literature on the counters of his stores because, as he pointed out, “consumers are the ones who purchase the cigarettes from us, so we’re emphasizing the importance of their contacting local legislators.” His association, he added, has “tried very hard to be proactive with state agencies and various organizations that regulate and have oversight over our business. That, so far, has worked very well.”
Voices Need to be Heard
Calvin admits that he and his colleagues in New York “haven’t had much success here in convincing state officials not to do that.”
True, hikes in 2000 and 2002 did go through. But then the industry helped defeat the most recent attempt at an increase in 2006–a $1.50-per-pack hike proposed by then Gov. George Pataki that would have raised it to $3 per pack. How’d they do it?
“We made a hell of a lot of noise,” Calvin said. Mainly, that noise was about all the tax revenue being allowed to seep out of New York, which some have estimated at between $500 million and $1 billion annually.
Unfortunately, the revelation that excise taxes aren’t stopping people from smoking hasn’t helped curb them. For example, the Louisville (Ky.) Courier-Journal reported in early January that the state earned an “F” from the American Lung Association for its efforts to prevent smoking. In other words, their efforts were having no effect. But that only prompted advocates to renew pleas for a higher cigarette tax.
“It’s almost like a moral question in some sense,” Prante concluded. “You’ve got to argue that politicians shouldn’t be able to tax an arbitrary item that they select. What if they started taxing ice cream because it makes people fat?”
Calvin agreed. “There is a cigarette tax-evasion epidemic here in New York State,” he said. “What we told the legislature back in 2006 was that before they even consider a higher rate on cigarette taxes they need to find a cure for that epidemic, or else it is going to be self-defeating.”
And therein lies the industry’s greatest chance for success. CSD