Cigarette Tax Hike Disastrous for State Revenues, Public Health, Small Business

ALBANY, NY (03/28/2008)(readMedia)-- Statement by James S. Calvin, President New York Association of Convenience Stores

Doubling New York’s cigarette tax in the next state budget, as is reportedly under consideration, would be disastrous for state revenues, public health, and small businesses.

- It would throw fuel on a cigarette tax evasion fire that is already blazing out of control. New York already is losing $1 billion a year due to “tax free” sales by Internet vendors, Native American tribal stores, and black market entrepreneurs. Half the smokers in New York State admit buying from these outlets; the tax hike would double the incentive for the rest of them to follow suit.

- It would hinder, rather than help, anti-smoking efforts by driving more sales to outlets beyond the reach of tobacco regulation, such as monitoring by state or local health departments to detect and punish sales of cigarettes to children.

- It would annihilate what’s left of the mom-and-pop convenience store trade. Their reward for getting licensed to sell tobacco products, complying with regulations, collecting and remitting taxes, providing employment, risking capital, and working seven days a week is a state tax policy that chases their customers away.

- It would generate less revenue, not more. Partly due to consumption declines, but primarily due to tax evasion, the state collects less _cigarette excise tax today at $1.50 per pack than it did in 2001 when the tax rate was _39 cents a pack lower. Remember, as more smokers shift their purchases to tax-free outlets to avoid the tax hike, the state would lose not only the new $1.50 but the original $1.50 as well.

If the State of New York was collecting all the cigarette tax it’s supposed to, there wouldn’t be any need for a conversation about the tax rate. By law, the Tax Department is required to collect excise taxes on vast quantities of cigarettes and motor fuel Native American tribal stores sell to non-Native American customers. But the Tax Department refuses to do so. According to economist Dr. Brian O’Connor, this enforcement would generate $600 million in new revenue in 2008-09 (www.nyacs.org/08Oconnorreport). Why aren’t the Governor and the Legislature focusing on this long-neglected, revenue-producing opportunity rather than a self-defeating increase in the tax rate?

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