ALBANY, N.Y. -- A recommendation in New York Gov. Andrew Cuomo’s proposed budget could pit premium cigars against value brands by changing the state’s taxing method from a percentage basis to a per-cigar model, according to a state convenience-store association.
The New York Association of Convenience Stores, Albany, N.Y., is fighting Cuomo’s budget recommendation that would change the current tax, which goes by a percentage of the cigar’s wholesale value, to 45 cents per cigar. Such a change would mean a $45 premium cigar would be taxed the same as a cigar sold in a two-pack for 99 cents.
“You’re talking about a massive shift of tax burden from bluebloods who consult Cigar Snob magazine for recommendations on luxury cigars onto blue-collar customers who buy two-packs at convenience stores,” said Jim Calvin, president of NYACS. “It’s not right, and we’re determined not to let it happen.”
NYACS members and staff have been meeting with individual members of the state Senate and Assembly since January to explain their concerns. The Assembly leadership supports the switch, while the Senate leadership opposes it, the association said. Currently, the governor and legislative leaders are negotiating multiple issues within the budget, including the proposed cigar-tax change.
Calvin provided the following explanation of the tax change: Currently, a handmade, premium cigar crafted in the Dominican Republic might retail for $45 at a fine tobacconist. Its wholesale price was perhaps $22, making the excise tax $6.27 using a state-approved rate of 28.5%. Meanwhile, a neighborhood bodega currently sells budget cigars in a package of two for 99 cents. The wholesale price on that package was perhaps 54 cents (27 cents per cigar), making the New York excise tax 15.4-cents per package, using the 28.5% rate.
Cuomo’s plan would flip that tax dynamic upside down, Calvin said. The tax on the premium cigar would drop dramatically from $6.27 to 45 cents, while the tax on the bodega two-pack would jump almost six times from 15.4 cents to 90 cents. For the two-pack, the excise tax would exceed the wholesale product price.
Calvin said the resulting spike in retail prices would trigger an exodus of price-sensitive, mass-market cigar customers from c-stores to places that have tax advantages, including the following:
- Neighboring Pennsylvania, whose state cigar excise tax is zero
- Native American outlets across New York, which do not collect any state tax
- Tax-free, mail-order tobacco websites
“This would quickly come to mirror the self-inflicted, cigarette-tax avoidance epidemic that for years has shortchanged New York retailers, taxpayers and anti-smoking efforts,” Calvin said. “Luxury cigar aficionados would receive a huge tax break, [while] blue-collar cigar consumers would pay through the nose and tax-collecting convenience stores would lose sales to tax-free competitors.”
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