Tobacco Retailing - Tax Evasion - Motor Fuels - Beverage Retailing - Store Operations - Positions

Positions:  Increasing the NYS Excise Tax on Cigarettes by 39 cents per pack

S.6084 by Rules Committee
The Cigarette Excise Tax Increase

The New York Association of Convenience Stores, representing nearly 5,000 neighborhood stores from Hamburg to Hempstead licensed by the State of New York to sell tobacco, adamantly opposes increasing the State excise tax on cigarettes tax from the current $1.11 per pack to $1.50 cents per pack for the following reasons:

• It would intensify the tax evasion stampede that has crippled the convenience store industry since the last tax hike two years ago.
  Convenience stores typically have relied on the responsible sale of legal tobacco products to adult customers for one-third or more of their retail trade. But the sharp hike in the cigarette tax two years ago resulted in their losing of 25 to 50 percent of their cigarette business, not because people quit smoking, but because they shifted their purchases to lower-tax and no-tax outlets to avoid New York's tax-inflated prices.
  A disputed state policy unfairly allows Native American stores to avoid charging state taxes on sales to non-Native Americans. Bordering states have sharply lower excise tax rates, such as Pennsylvania at 31 cents. The number of tax-free Internet tobacco sites has exploded. Since the March 1, 2000 cigarette tax hike, tax evasion has cost New York convenience stores upwards of $1 billion in gross sales of tobacco and other products, forcing many to either close, sell, or cut jobs.
• It would have no impact on reducing smoking, since New York smokers can readily find places to buy cigarettes without paying the tax.
  New York smokers are not a captive population. One of every two lives within a one-hour drive of a Native American-run store that refuses to collect taxes, or a state with a lower tax rate. And all of them are within a push of a button to order tax-free cigarettes via Internet. The higher New York's excise tax rate, the bigger the incentive to New Yorkers to seek out these alternative sources. This defeats the stated policy goal of reducing smoking by making it too expensive through exorbitant taxation. If people can easily avoid the tax, there is no financial incentive to quit.
• It would deprive the state, and its localities, of hundreds of millions of dollars in much-needed tax revenue during a recession.
  Since the March 1, 2000 increase in the state cigarette tax, taxable unit sales of cigarettes have declined by 21%, not because of a drop in overall consumption but because of tax evasion. Those lost taxable sales would have produced at least $500 million annually to help alleviate the state's fiscal dilemma. This doesn't count the sales tax revenue lost by county and local governments on those sales.
• It would reward unlicensed, unregulated tobacco dealers who thumb their noses at New York State's tax and health laws by sending them more business.
  Higher state taxes on cigarettes drive more smokers to the untaxed, unregulated side of the street. In addition to ignoring the tax law, Native American stores and Internet dealers refuse to subject themselves to enforcement by state and local health departments to detect sales to minors. If one of our member stores fails two of these "sting operations," they lose their license to sell tobacco and lottery tickets, while the health departments make no effort whatsoever to carry out comparable enforcement of this or any other tobacco retailing laws against Native American and Internet dealers. The higher tax would just add insult to the injury of this glaring double standard.

We question whether it is sound fiscal policy for the State of New York to increase its dependency on tax revenue from the sale of a commodity it is actively trying to persuade citizens to stop using. At the same time, we appreciate the challenge of trying to balance the state budget in these economic times. But convenience store operators wonder if everyone appreciates the challenge of operating a small business in these economic times when the state government you pay taxes to, and collect taxes for, is chasing away your customers with misguided tax policy.

In the interest of preserving small businesses, NYACS urges that this ill-advised, unnecessary and economically harmful tax increase be rejected.

January 14, 2002

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