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By Mehgan Belanger
TRENTON, N.J. -- One aspect of New Jersey Governor Jon Corzine's $30.9-million budget is getting a lot of heat -- a cigarette tax hike of 35 cents a pack. Opponents this week held a news conference at the Statehouse to discuss what could be the fourth tax increase on cigarettes in the state within the last six years.
According to a report in the Courier Post, the Corzine administration expects the tax to generate $60-million in revenue. Currently, New Jersey cigarette taxes are the second highest in the nation, if approved, the tax on cigarettes would be $2.75 a pack and the highest in the nation. The average price of a pack of cigarettes if $5.95, as reported by the Asbury Park Press.
Opponents of the tax, including c-store operators and tobacco industry representatives, claim that the increase in cigarette tax will cut their revenues and cause tremendous damage to the industry.
Prashant Desai, independent c-store owner and secretary for the Asian American Retail Association, a non-profit group of independent retail store owners, said based on a national survey, 40 percent of sales involve cigarettes. "For the independent stores, I believe this is more like 42 to 47 percent," Desai told CSNews Online.
This is because much more than just cigarettes are being bought when smokers walk into the stores. "When customers go into stores to buy cigarettes, they buy the soda, candy and other things as well," Desai said.
Dean Durling, chairman of Quick Chek Inc. in Whitehouse Station, N.J. and former National Association of Convenience Stores chairman, agrees that cigarette sales have a large impact on a c-store's revenue. "New Jersey doesn't sell beer, so cigarettes are an integral part," he said in an interview Thursday with CSNews Online.
While the number of tax stamps decrease in the state, the taxes from them increase. According to Durling, in 2003, tax stamps dropped 17 percent, which means retailers sold 17 percent less but taxes rose 54 percent, while in 2005, the amount of tax stamps sold decreased 12 percent but revenue was up 2 percent. "It's good for the state, but horrible for the industry," he said.
According to Desai, smokers will find other means of getting cigarettes if the tax is approved. People will go out of state to buy cartons of cigarettes to places like Delaware, where the tax ranks 12th in the nation at 55 cents a pack. While customers might stop by local stores to pick up a pack in between, this will cause stores to lose the other sales that come along with the cigarettes.
David Bishop, director of consulting firm Willard Bishop, estimates that if implemented, first year losses due to the tax increase could be as high as $50-million, including $23-million that goes to bond-holders. This is because of the savings consumers can see if they buy out of state. According to Bishop, more than $900 could be saved by an average smoker (average consumption of cigarettes is 19.5 per day) by purchasing their packs in Delaware.
Durling estimates that up to 44 percent of cigarettes consumed in New Jersey are already bought out of state.
Evidence of this border crossing is apparent in the demand for cigarettes in the states bordering New Jersey. While New Jersey's demand is down 47 percent from 1998, states like Delaware and Pennsylvania have seen an increase in demand for cigarettes, Bishop told CSNews Online.
According to Durling, New Jersey citizens buy 37.5 packs per person per year, while Delaware citizens purchase 178.8 packs per year. This is not because Delaware citizens smoke more, but that New Jersey citizens are going "long distance" to get cheaper cigarettes, said Durling.
As a result of the out of state purchases, Desai sees 1,000 to 1,500 stores closing due to decreased revenue. "It would really break our industry," he said.
Durling says he would like to see some fiscal responsibility exercised by Corzine, seeing as he comes from the business sector and he knows fiscal responsibility.
"This is a game of smoke and mirrors. Cigarettes are easy to attack, but New Jersey has hit that limit," Durling said.
A call to Govorner Corzine's office was not returned by press time.