November 12, 2010 - Sales of taxed cigarettes have plummeted a staggering 27 percent statewide since the highest cigarette tax in the nation took hold in July, a Post analysis has found.
Background: On July 1, Gov. Paterson and the Legislature increased the cigarette excise tax in New York State from $2.75 a pack to $4.35, the highest state tax rate in the country. (a href="http://snus-news.blogspot.com/2010/06/new-york-state-tobacco-taxes-increase.html">New York State - tobacco taxes increase, will be highest in nation once again..)Law-abiding cigarette dealers have sold an average of 30 million packs of smokes in each of the last four months -- some 11 million fewer than before Gov. Paterson and lawmakers raised the state tax on cigarettes to $4.35 a pack in a scramble to close a massive budget gap.
The first six weeks following a cigarette tax-rate increase in New York showed a plunge in sales at convenience stores statewide, mainly because most smokers are finding ways to dodge the tax altogether, according to a report from the New York Association of Convenience Stores (NYACS).
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Such a drop in smoking would exceed even the wildest imaginations of anti-smoking advocates, who estimated the arrival of the $10 cigarette pack would trim sales by 8 to 10 percent as cash-squeezed smokers cut back or quit.
More likely, experts say, sales have simply shifted to nearby tax havens that allow New Yorkers to stockpile cut-rate smokes at the expense of the state treasury. Both Pennsylvania and Vermont, which each have significantly lower cigarette taxes, have seen tobacco sales rise since New York's hike, The Post's analysis found. The hike raises the average price of a pack of Marlboros to $11.60 in New York City, compared to $5.93 in Matamoras, Pa.
The Post reported in August that retailers said sales were off by as much as 45 percent in stores bordering low-tax states like Pennsylvania and Vermont, as well as tax-free Indian reservations in western New York and on Long Island.
Anecdotal reports suggest sales are booming on in-state Indian reservations, where tribes have so far stymied Paterson's efforts to collect taxes on cigarettes sold to non-Native Americans. "That's what we warned would happen, and obviously it has come to fruition," said James Calvin, of the New York Association of Convenience Stores. "Every tax increase drives more smokers to that dark, shadowy, unregulated, unlicensed, untaxed side of the street. The whole policy is self-defeating."
If the trend continues, the state could fall far short of the $260 million windfall Paterson expected from the 58 percent tax hike. The increase has brought in only $13.8 million a month, according state sales figures, which means the plan could be as much as $136 million in the red by March 31.
Budget Division spokesman Erik Kriss said fiscal analysts factored a 22 percent drop in cigarette sales into their estimates. "We feel we're going to be on target for the fiscal year," he said. Budget officials did recently lower by $113 million the sum it expects to collect by taxing reservation sales of cigarettes.
That plan has been stalled in the courts, where tribes argue the move represents a violation of sovereignty. (New York State - federal judge, temporary restraining order extended until November 12, 2010..)
Reference: Cig-tax hike creates total drag on sales by BRENDAN SCOTT (firstname.lastname@example.org), Post Correspondent, New York Post, 11/11/2010.