NEW YORK -- The New York Association of Convenience Stores (NYACS) has announced it is actively opposing changes in cigar and loose-tobacco taxes recommended by New York Governor Andrew Cuomo in his proposed state budget.
In testimony prepared for a budget hearing held Monday, Feb. 6, by the finance committees of the state Legislature in Albany, NYACS President James Calvin said that while the budget document refers to them as “loophole closing actions,” they would actually be tax increases with negative consequences, including:
- 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 state excise tax on cigars 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 -- meaning another tax reconciliation to perform, and another tax return to file periodically.
Although the Budget Office says the change “is not anticipated to have an impact on the retail price of cigars,” NYACS’ analysis indicates that it would drive up retail prices, shrink retail profit margins or both, according to the association. Competing stores on Indian reservations and in neighboring Pennsylvania would be the beneficiaries of New York cigar smokers fleeing tax-inflated retail prices.
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.
The stated objective is to recapture cigarette tax revenue being lost to self-serve, roll-your-own cigarettes 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.
However, Calvin said 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.
In asking legislators to reject the proposed tax changes, Calvin urged them to heed the lesson of cigarette tax evasion, which is said to be so pervasive that half the cigarettes consumed in New York are purchased without payment of any state tax. This resulted, he said, from New York State’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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