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ALBANY, N.Y. -- Three weeks after New York Gov. Andrew Cuomo released his proposed state budget, the New York Association of Convenience Stores is gearing up to fight his plan to change the tax structure for cigars and loose tobacco.
In testimony prepared for a budget hearing held today by the finance committees of the state legislature, NYACS President James Calvin said that while the budget document refers to them as "loophole closing actions," they would actually be tax increases with negative consequences. Specifically, he noted that the changes would result in higher prices that would divert customers away from licensed, tax-collecting New York stores to easily accessible tax-free outlets. In addition, the state would lose all the excise tax revenue, and the sales tax revenue, from those diverted transactions.
Cuomo's budget calls for cigars to be taxed at 50 percent of retail value, with the wholesale distributor pre-paying a portion of that tax (20 cents per cigar) and the retailer remitting the balance -- meaning another tax reconciliation to perform, and another tax return to file, periodically, according to NYACS. Currently, cigars are taxed at 75 percent of wholesale value.
Although the Budget Office says the change "is not anticipated to have an impact on the retail price of cigars," NYACS' analysis indicates that it would drive up retail prices, shrink retail profit margins, or both. Competing stores on Indian reservations and in neighboring Pennsylvania would be the beneficiaries of New York cigar smokers fleeing tax-inflated retail prices, the association contends.
Cuomo's budget proposal takes on loose tobacco as well. The governor wants to change the state tax rate from 75 percent of the wholesale price to $4.53 per ounce, effectively bringing it in line with the tax on pack of cigarettes, as CSNews Online previously reported.
The move is seen as a way to tackle the rise in popularity of roll-your-own cigarettes across the state. However, Calvin said legitimate retailers of take-home pipe tobacco and chewing tobacco would suffer collateral damage, because the increase in price -- precipitated by as much as a tenfold increase in tax -- could also push customers to tax-free Indian reservations, neighboring states, or the black market.
In his prepared testimony, Calvin urged state legislators to learn from the increase in cigarette tax evasion that was resulted from the state's ever-increasing cigarette excise tax. He noted that the state has hiked that levy by nearly 700 percent over the course of 10 years.