Cigarette Sales Plummet at Tax-Collecting Stores During First 6 Weeks of New York's $4.35-a-Pack Excise Tax

ALBANY, NY (08/11/2010)(readMedia)-- The first six weeks of meteoric cigarette tax rates in New York showed a plunge in sales at convenience stores statewide, mainly because most smokers are finding ways to dodge the tax altogether, reports the New York Association of Convenience Stores

On July 1, Governor Paterson and the Legislature increased the cigarette excise tax from $2.75 a pack to $4.35, the highest state tax rate in the country. Just as NYACS predicted, the 58% jump unleashed a new wave of cigarette tax evasion, as tens of thousands of additional smokers – aghast at $9 to $12 pack prices – shifted their purchases to tax-free tribal smoke shops, the black market, and border states with lower tax rates.

Field reports indicate convenience stores have suffered an average drop of 25% to 35% in cigarette packs during July, but that those in closest proximity to tribal outlets and state borders experienced losses of up to 45%. Meanwhile, Indian reservation and border-state "tax havens" are flourishing, with sales up as much as 300% at some outlets.

"New York State has now increased its cigarette excise 691% in the past 10 years without closing off readily available channels for dodging that tax," said NYACS President James Calvin. "As a consequence, we're approaching the point where two-thirds of the cigarettes consumed in New York are purchased without collection of any New York State tax whatsoever. Law-abiding stores like ours lose enormous amounts of business, state and local governments lose hundreds of millions in tax revenue, and public health loses because the financial incentive to quit is easily and routinely circumvented. So what did the Governor and Legislature accomplish with this tax hike exactly?"

The upswing in tax evasion heightens the urgency for Governor Paterson to follow through on the scheduled September 1 start of tax collection on Native American sales of cigarettes to non-Indian customers, currently the busiest avenue of cigarette tax avoidance in New York, costing the state $1.5 billion in lost revenue.

The state law enacting the tobacco tax increases also set forth a plan to exercise New York's right to collect these taxes by requiring wholesale distributors, beginning September 1, to certify that they are prepaying the tax before delivering cigarettes, so that the tax is built into the price paid by customers at both Indian and non-Indian stores.

Calvin said anyone who tries to attribute the 25% to 35% drop in sales to smokers quitting "is in Lah Lah Land. Two or three percent, maybe as many as five percent have quit smoking. The rest just quit coming to our stores but continue to smoke cigarettes they found cheaper elsewhere."

On August 1, the situation got even worse for New York convenience stores, which have traditionally relied on tobacco as a major product category. Dramatic increases in state excises taxes on other tobacco products, such as cigars and smokeless tobacco, took effect, chasing even more of their customers to no-tax or lower-tax venues.

The one-two tax punch threatens to cripple many C-stores – especially mom-and-pop independents and those closest to Indian reservations and the Pennsylvania border.

"It's not just the loss of sales revenue from cigarettes themselves," Calvin said. "It's fewer customers coming through the door to buy cigarettes and other merchandise. For example, many stores have seen a corresponding drop in lottery sales."