Washington, DC - tobacco tax hike results in decrease in revenue..

March 1, 2010 - The District of Columbia’s (DC) Chief Financial Officer Natwar Gandhi learned a hard lesson this week after assessing the fiscal forecast for 2010: D.C. smokers weren’t happy with the city council after it upped the cost of cigarettes, and responded by depriving the District of millions in tax revenue.

According to a report released Wednesday, February 24th by Gandhi, that’s exactly what happened after the D.C. Council raised taxes on cigarettes from $2.00 to $2.50 a pack in mid 2009.

As predicted smokers would flee to Maryland ($2./pack) or Virginia $.30/pack) to buy their cigarettes. And according to a report released Wednesday by Gandhi, that’s exactly what happened after the D.C. Council raised taxes on cigarettes from $2.00 to $2.50 a pack in mid 2009.

In a report addressed to D.C. Council Chairman Vincent Gray and Mayor Adrian Fenty, Gandhi wrote, “The 50-cent increase in the cigarette tax rate was projected to increase revenue but also decrease volume. Collections year-to-date point to a more severe drop in volume than projected. The estimate for cigarette tax revenue is revised downwards by $15.4 million in [fiscal year] 2010 and $15.2 million in [fiscal year] 2011.”

Annie Chen, the owner of North Sea China Restaurant on 18th St. NW, noticed the drop almost immediately: Since the tax increase was put into effect, Chen has sold smokes to her customers in Adams Morgan at a pre-increase price. “Some places sell for $8,” she slyly reminded me Wednesday night. “But we sell for $7.30. Otherwise you all go to Virginia and Maryland.”

North Sea doesn’t rely on cigarette sales — that’s what the food is for — but the extra revenue is significant enough that Chen would rather reduce her profit margin than lose customers. “I just want to make customers happy,” she said.

Reference: Washington cigarette tax hike results in decreased revenues as smokers buy outside city limits by Mike Riggs - The DC - The Daily Caller, 02/25/10.

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