NEW YORK -- On Jan. 17, New York Gov. George Pataki is planning to unveil his 2006-2007 state budget, reports the Buffalo News, and a source of revenue put on the table is a hike in the state’s current $1.50 per-pack cigarette excise tax.
The New York Association of Convenience Stores (NYACS) acted quickly to combat the threat of a cigarette tax increase when it initially heard the governor was planning to boost the tax by $1.00 to $2.50 per-pack. However, NYACS learned on December 21 the proposed increase could be as much as $1.50 per-pack, therefore doubling the cigarette excise tax to $3.00 per-pack.
NYACS notes that the state’s convenience store industry, which used to rely on cigarettes for up to one-third of inside sales, “has been decimated by rampant cigarette tax evasion” thanks to two previous increases: a 56 cents per-pack increase to $1.11 in 2000, and a 39 cents per-pack increase to $1.50 in 2002. The association adds that many stores experienced a 40 to 60 percent drop in unit sales because of the increases, and overall estimates that tax evasion costs convenience 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 NYACS President Jim Calvin.
NYACS notes that during the 2004-2005 fiscal year, with a tax rate of $1.50 per-pack, the state actually collected 4 percent less cigarette tax revenue than four years earlier when the rate was only $1.11 per-pack.
Health advocates, meanwhile, claim more people are quitting smoking. However, NYCAS notes that the plunge in taxable unit sales “far exceeds the drop in consumption.”
“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 $3.00 a pack,” notes NYACS. For every pack of cigarettes sold, convenience stores located in New York City collect $1.50 in state tax plus $1.50 in city tax for a total of $3.00 per-pack. Stores located throughout the rest of the state only collect 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.”
By state law, On March 1, 2006, Gov. Pataki is required to begin enforcing the collection of state taxes on Indian sales to non-Indian New Yorkers--“the biggest slice of the cigarette tax evasion pie in New York,” notes NYACS.
“Cigarette tax revenue discussions in the 2006-2007 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.”