New York Association of Convenience Stores

130 Washington Avenue, Suite 300, Albany NY 12210

TELEPHONE: (800) 33-NYACS or (518) 432-1400 FAX: (518) 432-7400

MEMORANDUM IN OPPOSITION

S.5788 by Senator Golden

AN ACT to amend the tax law, in relation to amending the percentages used to

determine the presumed cost of doing business for agents and wholesale dealers of cigarettes

The New York Association of Convenience Stores is a private, not-for-profit trade organization representing 6,000 neighborhood mini-marts and convenience stores that are licensed by the State of New York to sell cigarettes under the Cigarette Marketing Standards Act.

Ostensibly to maintain stability and fair play in the marketplace, the CMSA imposes minimum markup percentages at each level of the supply chain to establish uniform minimum selling prices for each brand of cigarette sold in New York State.

S.5788 proposes to increase in the minimum markup percentages for wholesalers and stamping agents, but not retailers.

While we agree that the cost of doing business has continued to escalate dramatically for all cigarette marketers, we strongly oppose this 11^th-hour initiative to benefit certain segments of the supply chain to the detriment of others.

This is a complex issue that needs to be addressed, but in a balanced and comprehensive manner. For instance, any meaningful reform of the CMSA should eliminate the existing two-tier wholesale pricing structure that statutorily forces smaller retailers to pay a higher wholesale price than the chains they compete with. Also to be considered are the risks of the resulting higher prices chasing away more customers to the unregulated, "tax-free" side of the street.

It is important to note that in 2000, the Health Care Reform Act imposed a 2-cents-per-pack "handling fee" to be paid by retailers to their wholesaler or stamping agent to defray rising delivery costs. There was no corresponding mechanism for retailers to defray their rising costs, nor has there been any relief since then.

Since it took effect in March 2000, this handling fee has shifted more than $79 million in revenue from cigarette retailers into the pockets of stamping agents and wholesalers. And it continues to tax retailers – and enrich suppliers – at a rate of $13 million a year.

Given these circumstances, increasing the minimum markup percentages for suppliers alone would be highly unfair and inappropriate. Suppliers and retailers are interdependent, and the need for higher minimum cigarette markups should be addressed in a careful, comprehensive manner that respects and sustains that balance.

If, however, the Senate is intent on moving forward with S.5788 this week as the sponsor claims, then it should at least amend the bill to partially alleviate the imbalance by scaling back the wholesale markup increases, increasing the retail minimum markup from 7% to 12%, and eliminating the 2-cents-per-pack handling fee.

James S. Calvin

President, NYACS

June 20, 2005