ALBANY – The New York Association of Convenience Stores issued a press release yesterday strongly opposing changes in cigar and loose tobacco taxes being recommended by Gov. Andrew Cuomo in his proposed state budget.

In testimony prepared for a budget hearing yesterday, NYACS President James Calvin said that while the budget document refers to them as "loophole closing actions," they would actually raise taxes with the following negative consequences:

  • Resulting higher prices would divert customers away from licensed, tax-collecting New York stores to easily accessible tax-free outlets.
  • New York State would lose all the excise tax revenue – and the sales tax revenue – from those diverted transactions.

The current excise tax on cigars in New York is 75% of wholesale value. Cuomo’s budget would instead tax them at 50% of retail value, with the wholesale distributor pre-paying a portion of that tax (20 cents per cigar) and the retailer remitting the balance. According to NYACS, this entails an additional tax reconciliation to perform, and another tax return to file, periodically.

NYACS said that while New York’s Budget Office maintains the change "is not anticipated to have an impact on the retail price of cigars," (emphasis added) its internal analysis indicates that it would drive up retail prices, shrink retail profit margins, or both. As a result, competing stores on Indian reservations and in neighboring Pennsylvania would be the beneficiaries of New York cigar smokers fleeing tax-inflated retail prices.

 



[Editor's Note: Assuming a $5 wholesale cigar with a $10 MSRP, the 75% wholesale tax would be $3.75 resulting in a $13.75 retail. The new proposed 50% of retail tax would equate to a $5.00 tax and a $15.00 cigar. This simple math shows that this is a about an 8% increase. They either have a lot of nerve, or think we are stupid when they assert: the change "is not anticipated to have an impact on the retail price of cigars" ]

As for "loose tobacco," Cuomo proposes to change the state tax rate from 75% of the wholesale price to $4.53 per ounce, claiming this roughly equates to the excise tax rate of $4.35 a pack on finished cigarettes.

[Editor's Note: Assuming a $6 wholesale on a $12 MSRP of a 2oz. tin of tobacco, a 75% tax would be $4.50, making the retail $16.50. More realistically, let's assume a discounted tin at $5 wholesale and $10 retail, then we have a 75% tax of $3.75 and a retail of $13.75. When that is changed to $4.53 per ounce on the discounted tin, then we have a retail price of $19.06, which is almost a 150% increase in price.]

The stated objective is to recapture cigarette tax revenue being lost to the new self-serve, roll-your-own cigarette craze in New York by eliminating the tax differential that is driving the proliferation of retail outlets selling customers low-tax "pipe tobacco" to load into their on-premise roll-your-own machine.

According to Calvin, legitimate retailers of take-home pipe tobacco and chewing tobacco would suffer collateral damage, because the dramatic spike in price – precipitated by as much as a tenfold increase in tax – would chase those customers away to tax-free Indian reservations, Pennsylvania, and/or the black market.

Calvin urged legislators to reject the proposed tax changes, heeding the lesson of cigarette tax evasion, which is now so pervasive that half the cigarettes consumed in New York are purchased without payment of any state tax whatsoever.

This resulted, he said, from New York’s decisions to increase its cigarette excise tax by nearly 700% in the span of 10 years without closing off well-worn pathways for dodging that tax.

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