State Considers Bailout For Wholesale Tobacco Distributors

Last-Minute Move to Impose Fee Hike on Small Retail Businesses

ALBANY, NY (06/19/2013)(readMedia)-- Statement by James Calvin, President, New York Association of Convenience Stores:

In the closing days of what was supposed to be a "no new taxes or fees" legislative session, the Cuomo administration and the Legislature are considering imposing a fee increase on small retail businesses.

The statutory 2-cent-per-pack "handling fee" paid to wholesale cigarette distributors by the convenience stores and other retailers they supply would climb to 9 cents, 14 cents, or 17 cents, depending on different versions of the proposed legislation – costing those retail businesses an additional $23 million to $50 million per year.

Originally enacted in 2000 as an amendment to the Cigarette Marketing Standards Act, the 2-cent-per-pack handling fee has enriched the wholesalers – many of whom are headquartered outside the state but deliver to New York retailers – to the tune of $160 million since then.

Increasing the mandatory fee to 9 cents a pack would provide a windfall of tens of millions of dollars more in recurring revenue for the distributors – at the expense of the retail stores they supply. Retailers would have no choice but to pass along the fee increase to consumers, resulting in a price spike that gives more smokers a financial incentive to desert their stores in favor of unregulated "tax-free" sources. Already, half of the cigarettes consumed in New York are purchased without the collection of any New York State taxes.

Ironically, one version of the bill calls for the wholesale distributors to remit a portion of the fee increase to the State to fund a newly created "cigarette tax enforcement account" even though the bill would trigger more cigarette tax evasion.