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[ INDUSTRY NEWS]
New York facing another
hike in cigarette tax
As 2006 dawned, New York Gov. George Pataki's office was seriously considering including in his upcoming 2006-07 state budget a proposed cigarette tax hike of as much as $1.50 a pack, doubling the statewide tax to $3 per pack.
"If he pulls the trigger on this, it should be ruled a homicide," said James Calvin, president of the New York Association of Convenience Stores. "Someone in state government seems intent on killing the convenience-store industry."
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 increases, from 56 cents a pack to $1.11 in 2000 and from $1.11 to $1.50 in 2002. Many stores experienced a 40-percent to 60-percent drop in unit sales as a result and NYACS estimated that tax evasion costs over $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.
Part of the objective of 2006 tax-hike proponents appears to be "equalizing" the tax rate in New York City and the rest of the state at $3 a pack. 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 state collect only the $1.50 state tax.
"In other words," said Calvin, "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."
On Jan. 17, retailers' worst fears were realized when Gov. Pataki sent the state legislature his 2006-2007 budget proposal, which included his plan to boost the state's current cigarette excise tax of $1.50 per pack to $2.50 per pack. If passed, this would make the state's excise tax for cigarettes the highest in the United States, ahead of Rhode Island's $2.46 per pack.
Gov. Pataki is required by law on March 1 to begin enforcing a new state law that requires collection of state taxes on Indian sales to non-Indian New Yorkers, the 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."
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