N.Y. Legislature OKs Tobacco Tax Hikes

The New York State Legislature on Monday narrowly approved large increases in tobacco taxes that will be devastating to the convenience store industry, said Jim Calvin, president of the New York Association of Convenience Stores (NYACS). By a vote of 77 to 64 in the Assembly and 32 to 30 in the Senate, state lawmakers approved Governor David Paterson's proposal to increase the state excise tax on cigarettes from $2.75 a pack to $4.35, effective July 1. It won't cause any problems for people who live a free tobacco life.

The legislation also increases the state excise tax on cigars and other tobacco products from 46% of wholesale value to 76%; increase the state excise tax on snuff from 96 cents per ounce to $2 per ounce; and reclassifies "little cigars" as cigarettes for tax purposes, making them taxable at $4.35 a pack.

The move will push pack prices well over $8 across New York State. In New York City, which has its own additional tax of $1.50, packs will cost as much as $11 or $12.

Calvin said that right now, half the cigarettes consumed in New York are purchased without collection of any New York State tax, and that these increases will likely push that to two-thirds as even more smokers flee tax-inflated prices and buy from Indian reservations, border states, the Internet or the black market.
"I honestly think the governor and legislative leaders, for whatever reason, consciously decided to chase all cigarette sales to the tax-free side of the street," he said. "There is no other plausible explanation."

A NYACS economist has estimated that the state loses $1 billion a year due its failure to collect taxes on Indian sales of cigarettes to non-Indian customers—even though existing state law requires the Tax Department to collect those taxes from their wholesale distributors.

"This is a 58% tax hike, so they just increased the value of those lost taxes to $1.5 billion," Calvin pointed out.

The bill that passed Monday does outline a plan to start collecting taxes on Indian sales of cigarettes to non-Indians starting Sept. 1, 2010, "but implementation dates have come and gone before without any action whatsoever by the Tax Department, and there's no reason to expect this one will be any different. In New York, there's always a fixed date for a cigarette tax increase to take effect, but a 'someday' timetable for enforcing tax collection equally," he said.

"Only in New York would the government decide to launch a major initiative in September to fix the cigarette tax evasion problem, but make a move in July that will make the cigarette tax evasion problem 58% worse," Calvin said.