SACRAMENTO, Calif. -- Fred Faulkner’s customers have been “pretty quiet” regarding California’s substantial $2-a-pack cigarette-tax increase that goes into effect April 1.
His staff is working diligently this weekend to execute the price change, which voters approved last fall and is expected to rake in $1 billion to $1.4 billion during the state's 2017-2018 budget year.
“The tax increase is just now starting to sink in for smokers and retailers,” said Faulkner, sales and marketing director for Jaco Oil and its 54 Fastrip Food Stores, Bakersfield, Calif. “We are seeing a few customers load up on their favorite smokes; however, nothing of any major significance.”
Incidentally, Faulkner said the chain's cigarette business has been off about 7.7% since the first of the year, but he attributes that dip to New Year’s resolutions and other reasons not related to the new tax. That said, he does expect a falloff in volume directly attributable to California’s Proposition 56.
“We went through a large increase in Arizona a few years ago and yes, we saw reduced sales,” Faulkner said. “However, due to the large dollar increases [because of the tax], dollar sales were pretty close to prior-period volumes. Units, of course, dropped as expected.”
The cigarette tax rate jumped from 87 cents to $2.87 per pack of 20 cigarettes, resulting in standard packs costing $8 to $9.
In recent weeks, major tobacco manufacturers raised list prices, in part, to coincide with the new California tax. New revenue from the tax will be used primarily to augment spending on healthcare for low-income Californians, according to a state legislative website.
Also effective Saturday, nicotine-delivery devices (electronic cigarettes, e-cigars, e-pipes, vape pens and e-hookahs) sold in combination with substances containing nicotine will be subject to a tax rate of 27.3% of the wholesale cost of the product, state sources said.