Pataki Trigger

NYACS fighting equalizer increase in state cigarette tax

ALBANY, N.Y. -- New York Governor George Pataki's office was seriously considering including in his upcoming 2006-07 state budget proposal a cigarette tax hike of as much as $1.50 a pack, doubling the statewide tax to $3.

Part of the objective, said Jim Calvin, president of the New York Association of Convenience Stores (NYACS), appears to be equalizing the tax rate in New York City and the rest of the state.

Currently, New York City stores collect $1.50 state tax plus $1.50 city tax for a total of $3. Those in the rest of the [image-nocss] state collect only the $1.50 state tax. In other words, New York City shot itself in the foot with an excessive city tax increase in 2002 that created massive tax evasion, and the solution is to shoot the rest of the state in the foot so we're all equal, Calvin said.

NYACS is mobilizing to extinguish this threat of another sharp increase in the state's tax. If he pulls the trigger on this, it should be ruled a homicide, said NYACS President James Calvin. Someone in state government seems intent on killing the convenience store industry.

The plan to equalize the rate for all counties in the state would reduce some of the cross-border tobacco trade that occurs because of the large price discrepancy, industry and government sources who asked not to be identified, told the Buffalo News in a separate report. Another plan being considered would increase the per-pack tax across the state by at least 50 cents, that report said.

The trade, which used to rely on cigarettes for up to one-third of inside sales, has been decimated by rampant cigarette tax evasion fueled by the last two tax increasesfrom 56 cents a pack to $1.11 in 2000 and from $1.11 to $1.50 in 2002. Many stores experienced a 40% to 60% drop in unit sales as a result, the group said, and overall, NYACS estimates tax evasion costs c-stores more than $1 billion a year in sales.

The record clearly illustrates that increasing New York's cigarette excise tax is self-defeating financially, is devastating to small business, and is detrimental to public health, said Calvin.

In fact, in the 2004-05 fiscal year, with a tax rate of $1.50 per pack, the state actually collected 4% less cigarette tax revenue than four years earlier, when the rate was only $1.11, NYACS said. Health advocates pass that off as people quitting smoking, but the plunge in taxable unit sales far exceeds the drop in consumption, said the association.

Governor Pataki is required by law on March 1, 2006 to begin enforcing a new state law that requires collection of state taxes on Indian sales to non-Indian New Yorkersthe biggest slice of the cigarette tax evasion pie in New York.

Cigarette tax revenue discussions in the 2006-07 budget should focus on capturing the hundreds of millions of dollars in existing revenue that the Pataki administration has been letting escape all these years, said Calvin. We need to see sustained success in this enforcement initiative before anyone contemplates further increases in the tax rate.

Legislators and advocates for collecting the tax said the state has been losing at least $400 million a year in cigarette taxes, with much of that because of Seneca Nation tobacco merchantsthe major cigarette retailer among the state's tribes. The Indian retailers have been able to undercut non-Indian merchants by at least $15 per carton on major brands, said the report.

Bill Phelps, a spokesperson with Philip Morris USA said he has no details, but told the newspaper that raising the tax is unfair to adult smokers and could lead to unintended consequences, for the state, including more attempts to evade the tax.

New York's per-pack tax ranks eighth in the country. Rhode Island is first, at $2.46 per pack, followed by New Jersey at $2.40.