Taxable Unit Sales of Cigarettes in New York Fall Sharply As Tax Evasion Flourishes

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Cigarette tax revenue and unit sales comparison June-Aug 07/08

ALBANY, NY (10/02/2008)(readMedia)-- Monthly tax collection data confirms that the June 3rd cigarette tax increase has intensified New York State’s cigarette tax evasion epidemic, underscoring the urgency of state intervention, according to the New York Association of Convenience Stores.

Figures posted on the state Department of Taxation and Finance web site (www.tax.state.ny.us/collections/monthly_tax_collections.htm) indicate that licensed stores sold about 5.5 million fewer cartons during the three months ending August 31, 2008, compared with the same period in 2007. That’s a 31 percent drop. (See attached chart)

“A small fraction of that is attributable to people quitting smoking,” said NYACS President James Calvin. “The vast majority of the drop is smokers shifting their purchases to tribal stores, the Internet, or the black market to avoid paying any tax, or to border states with lower tax rates.”

Cigarette tax revenue did climb 27 percent during the three-month period. But the tax rate actually went up 83 percent – from $1.50 a pack to $2.75 – so “taxpayers and elected officials should be demanding to know where the other 56 percent went,” said Calvin. “The answer is that some smokers quit, but a lot more of them fled to sources that sell cigarettes without any taxation or regulation whatsoever. That’s unhealthy for New York.”

The state Legislature and Gov. David Paterson decided in April to boost the excise tax as part of the state budget, ignoring warnings from NYACS that it would merely trigger a new wave of tax evasion that would defeat the objectives of higher revenues and lower smoking rates.

“Whenever someone buys a pack of cigarettes tax-free, the state loses the $2.75 excise tax, the state and local governments lose another 50 cents or so in sales tax revenue, licensed small businesses are deprived of a legitimate sale, the financial incentive to quit smoking disappears, and those who ignore tobacco taxes and regulations are rewarded for defying the law,” said Calvin.

A February 2008 study done for NYACS by economist Brian O’Connor (www.nyacs.org/documents/08OConnorstudy.pdf) showed that the state would generate $600 million a year in additional revenue by enforcing the existing law requiring collection of taxes on tribal sales of cigarettes to non-Indian customers – a statute Governors Pataki, Spitzer, and, so far, Paterson have refused to implement.

“That was before the tax rate almost doubled on June 3rd,” noted Calvin. “We can surmise that the lost revenue is now approaching a billion dollars annually.”

NYACS said the Tax Department figures indicate that from June through August, the state collected $73 million more in cigarette excise tax due to the tax hike. However, NYACS added, the 5.5 million fewer taxable cartons sold translate to a net loss of around $22 million in state and local sales tax revenue.

“These numbers confirm what we had predicted – that due to the plague of cigarette tax evasion that our state has allowed to flourish, the June 3rd cigarette tax hike is self-defeating, and has succeeded only in crippling legitimate small business, chasing away much-needed tax revenue, promoting lawlessness, and thwarting anti-smoking initiatives,” said Calvin.

“We urge Governor Paterson to act now to stop untaxed sales of cigarettes,” he said.

Headquartered in Albany, the New York Association of Convenience Stores is a private, not-for-profit trade organization representing the state’s 7,700 neighborhood mini-marts and convenience stores.

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