PHILADELPHIA -- A little over one month into Philadelphia’s $2-per-pack tax increase, retailers in the metropolis are already suffering its effects. It’s a story heard time and time again: when individual cities or counties enact a drastic tobacco tax, many consumers opt to take their business outside the taxable area.
Ray Martinez, who operates Ray’s Food Market in West Philadelphia, told the Philadelphia Daily News that his sales are down nearly 80% since the tax went into effect on October 1.
"Right now we're not making money at the corner stores," he said. "The stores right here in West Philly, we're like three-to-five minutes away from City Line [Avenue] and Delaware County, and people are just going across the street.”
Tobacco retailers in counties near Philadelphia have already seen an increase in their business. Sales at the Havertown Sunoco have leapt 50%, some 400 packs a day. The store’s manager, Margo Wells, wasn’t positive if the boon was coming from Philadephia residents, but noted that many consumers are now buying in bulk.
“The people that are buying cigarettes are buying more,” she said. “The people that were buying one or two packs are buying three or four packs or a carton.”
Great for the bordering suburbs; devastating for Philadephia retailers and wholesalers such as Steve Hershowitz, manager of a Philadelphia tobacco wholesale business.
“It's detrimental all over the city,” said Hershowitz, who requested the name of his business be withheld due to fear of reprisal. “There are probably over 2,000 small corner stores within city lines, and they're all taking a hit. There wasn't much of a profit margin on cigarettes to begin with, but . . . in the long run, I don't think anybody's going to be able to survive, especially those [stores] close to the border.”
A big part of the problem, according to Hershowitz and others, is that local politicians did not consider the financial implications of the tax on operators who compete with retailers in the suburbs.
Representatives of Philadelphia’s Health Department and Department of Revenue insist this is not the case. Dr. Giridhar Mallya, director of policy and planning for the city's Health Department, said their research did account for a 30%-to-50% reduction due “tax avoidance” from consumers who drive outside the city to buy their cigarettes as well as Philadelphia stores selling untaxed contraband cigarettes.
"We will work with the state Department of Revenue to make sure there's as much compliance as possible,” Mallya said. “But we took into account tax avoidance, based on experience from other places, and those things are reflected in our health assessment and revenue assessment.”
Department of Revenue spokesperson Elizabeth Brassell added that the city plans to deduct an estimated $1 million annually from the tax collections to cover administrative fees for additional enforcement agents to combat an expected increase in black-market tobacco trade--though she declined to specify how many such agents would be hired.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.