Cigarette Tax Hike to Unleash New Wave of Tax Evasion, Hurting State Revenues, Public Health, & Small Business

• by New York Association of Convenience Stores

ALBANY, NY (06/02/2008)(readMedia)-- Rather than compelling New Yorkers to quit smoking, the June 3 cigarette tax increase will cause millions of smokers to shift their purchases to unlicensed, unregulated, untaxed sources of supply.

“Sadly, it’s just going to feed the cigarette tax evasion epidemic that the State of New York has allowed to run rampant for the past 10 years,” said James Calvin, President of the New York Association of Convenience Stores.

“New York already loses $1 billion annually due to ‘tax free’ sales by Internet vendors, Native American tribal stores, and black market entrepreneurs,” he said. “Half the smokers in New York State admit buying from these outlets. The tax hike nearly doubles the incentive for the rest of them to follow suit.”

NYACS predicts the intensified tax evasion stampede will be disastrous for state revenues, public health, and small businesses, to wit:

- It will 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 will annihilate what’s left of the mom-and-pop convenience store trade, which already is experiencing a cash-flow crisis due to skyrocketing wholesale prices for the motor fuel they buy 10,000 gallons at a time. Their reward for getting a license to sell tobacco products, complying with all state regulations, collecting and remitting taxes, providing employment, risking capital, and working seven days a week is a state tax policy that chases their cigarette customers away.

- It will ultimately 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 will lose not only the new $1.25 but the original $1.50 as well.

If the State of New York were collecting the cigarette taxes it’s supposed to, there wouldn’t be any need for a tax hike. By law, the Tax Department is required to collect the excise tax on the vast quantities of cigarettes and motor fuel sold by Native American tribal stores to non-Native American customers. But the Department, shirking its constitutional responsibility, refuses to do so, promoting lawlessness and costing the state $600 million per year in lost revenue.

To read economist Brian O’Connor’s analysis of cigarette tax revenue loss due to tax evasion, visit www.nyacs.org/08Oconnorreport.

-30-