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BOSTON -- Massachusetts is cracking down on convenience stores and gas stations that sell cigarettes below the set minimum price, and store owners say the move, combined with a tobacco tax hike, will have a devastating impact on their business.
The legislature is on the verge of approving a 75-cent tax increase on cigarettes. Meanwhile, the Department of Revenue is looking to prohibit store owners from putting cigarettes on sale, which could cost stores 60 cents a pack, according to the North Adams (Mass.) Transcript.
The new Department of Revenue regulations were set to take effect July 1 but have been put on hold for three months amid complaints from lawmakers and store owners. In an effort to level the playing field among stores, the directive would prevent tobacco manufacturers from offering buydowns to retailers, which enables stores to deploy a favorable pricing strategy on cigarettes.
For example, if a store sells a pack for 60 cents less than the minimum price, the manufacturer will give the store 60 cents for every pack they sell. Stores throughout the state that rely on cigarette sales participate in buydowns to stay competitive, said Cathy Flaherty, executive director of the New England Convenience Store Association (NECSA).
"The buydown is used for retailers to increase market share," Flaherty said. "It lowers the price of certain products at certain times of the year. It's like putting a product on sale to attract customers. It's worth about 60 cents a pack and to be hit with a 60-cent increase and a projected 75-cent tobacco tax increase, it would be a double-whammy for retailers."
Timothy Connolly, a Department of Revenue spokesman, claims buydowns aren't fair. "The buydowns to us appear to be a way of getting around the minimum price," he said. "It's unfair for some to sell below the minimum price while others obey the law and sell at the minimum price."
Connolly said buydowns used to be scattered and only amounted to 10 or 15 cents. But they are more common now and worth much more. Connolly said the department has received complaints from retailers whose competitors were getting buydowns that they weren't.
Convenience store owners are up in arms because the combination of the tax hike and loss of buydowns will drive the cost up and force customers to other states, Indian reservations and the Internet, Flaherty said.
Mukesh Desai, owner of Dalton convenience store in Pittsfield, Mass., said he relies heavily on buydowns to entice customers in the door. "It will definitely hurt business because people won't buy from here," he said. "They'll go to Wal-Mart. If they stop the buydowns, the small stores will be done. I won't be able to sell anything but soda and that's it."
Rep. Paul Caron (D-Springfield), who has sponsored legislation that would stop the state from banning buydowns, said 33 percent of mom-and-pop customers purchase cigarettes; however, they account for 50 percent of the sales in a store. If the cigarette prices go up, they'll buy their cigarettes, milk and lottery tickets somewhere else, he said.
Caron said the state is expected to appoint a task force that will look at the issues of cigarette pricing.