NYACS Hot Under Collar

New cigarette excise tax spells peril for convenience retailers

Published in CSP Daily News

By
Steve Dwyer, CSP Reporter

ALBANY, N.Y. -- Calling the measure "crippling at least and fatal at worst," the president of New York's convenience store association said the group in the coming weeks will exhaust its efforts to lessen the impact of an impending tax hike on cigarettes in the Empire State. The $1.25 per pack tax increase, dropped on top of the current $1.50 tax, could cause significant hardship to convenience retailers as the law prepares to take effect June 3.

The New York state legislature Wednesday voted nearly unanimously to raise the state cigarette tax as a mechanism to fund the 2008-09 fiscal [image-nocss] budget. The vote was unanimous in the Senate while receiving 130 of a possible 150 votes in the Assembly chamber.

Facing a sales tax burden of $2.75 is certain to harm convenience retailers, many of whom will see customers scurry for cigarettes elsewhere, such as Indian reservations, the Internet or black market. Jim Calvin, president of Albany, N.Y.-based New York Association of Convenience Stores (NYACS) said New York retailers have already lost potential receipts on cigarettes—to the tune of 25% to 50%. The latest tax increase only compounds the dilemma.

In examining the association's options, Calvin told CSP Daily News that the association plans to appeal to Governor David Paterson to intervene on current tax evasion activities. "Our focus will be to compel the state of New York to curtail this activity that's occurring, and deal with it before the increase takes effect. The goal is to get all taxes collected and collected fairly. If not, we'll have a calamity on our hands."

In March 2006, New York passed a law that requires the state to collect taxes from Native American retail outlets that sell cigarettes to non-native American customers. Calvin said the tax department has refused to enact the law, which was slapped with an injunction in 2007 when New York's tax agency failed to distribute coupons to Indians to obtain tax-free cigarettes for their own consumption. "This law is not a suggestion—it's the law," said Calvin.

When asked if he expected the state to resolve the matter soon surrounding the 2006 law and begin collecting taxes, Calvin said "experience has shown that the tax department is irresponsible and defiant when it comes to this issue."

Calvin said that efforts to block the bill passed on Wednesday resonated with several rank-and-file lawmakers, but legislative leadership ended up using its influence to ensure the bill's passage. "Leaders of the legislature viewed this as source for additional revenue, to close the budget gap. The consequences of this increase were not a concern to them at all—all they cared about was the revenue," Calvin told CSP Daily News.

"By driving millions more New York smokers to the tax-free side of the street, this tax increase is a lose-lose-lose proposition for New York," said Calvin. "Tax-collecting stores lose core customers, the state and local governments lose much-needed revenue, and the anti-smoking movement loses ground."

On sovereign Native American land, a carton of brand-name cigarettes currently sells for about $27 to $28, while lesser-known brands sell for as low as $11 per carton. By contrast, a carton of brand-name cigarettes cost $42 to $43 at mainstream retail locations in New York.

Putting a level playing field in place is what Calvin and New York convenience retailers are seeking. Such an effort appeared doable when former Gov. Eliot Spitzer vowed to end tax-free sales, but he never followed through on the pledge, as the state tax department failed to enforce the law.

According to a report in The Buffalo News, Spitzer put into his January budget proposal a plan to make it illegal for manufacturers to supply wholesalers who sell to retailers that fail to collect the excise tax. The Senate embraced the plan, but the Assembly rejected it.

The Paterson administration has declined on repeated occasions—and again last Thursday—to say what it intends to do regarding the tax-free issue, the newspaper said.

The budget anticipates getting $120 million from collection efforts involving cigarettes now sold tax-free, according to Jeffrey Gordon, a spokesperson for Paterson's budget office. But Gordon said the administration has not yet decided how the taxes will be collected. In addition, the state anticipates getting an additional $265 million for the higher cigarette taxes, according to the paper.