Tax Hike Sends Utah Tobacco Sales in Decline

SALT LAKE CITY -- One year after a $1 increase in Utah's excise tax, sales of tobacco products have dropped 15 percent.

The decrease has lawmakers and anti-smoking advocates cheering, pointing to it as an encouraging sign that the increased levy has spurred people to stop smoking, as CNBC.com reported. However, tobacco industry insiders counter that people may just be buying their tobacco products at out-of-state retail stores.

"Depending on how you want to look at the data, clearly there's been a move there downwards," said David Sutton, a spokesman for Philip Morris USA. "We suspect what it is, as it is in most states, is cross-border sales."

When the numbers are tallied, figures show approximately 10 million fewer packs of cigarettes were sold in Utah since the additional dollar was tacked onto the price on July 1, 2010. In contrast, tobacco sales jumped 20 percent in Evanston, Wyo. -- a town just north of the Utah border -- where the excise tax is more than $1 less. That translates into more than 400,000 packs of cigarettes sold in one town at a time when Wyoming sales were flat statewide, the news outlet reported.

Despite decreased sales, revenue from the tobacco tax has almost doubled to $119 million, according to the Utah Tax Commission. "You kind of get the best of both worlds," said Rep. Paul Ray (R-Clearfield) who sponsored the increase. "We've had a huge decrease in smoking, basically, and had a huge increase in revenue from the tax."

But as a consequence, small businesses may be paying the price. Jim Gibbs, owner of The Tobacco Store in South Salt Lake, said he's already had to lay off one part-time employee and could have to cut his own salary in half. He said the increased tax hit especially hard since he was already losing money because of the poor economy.

"I might be on a slow decline of going out of business," Gibbs said. "I'm just barely hanging on."

There were early signs that the tax increase would have a noticeable effect on tobacco sales. As CSNews Online reported, Utah's cigarette tax rose from 69.5 cents per pack to $1.70 on July 1, 2010. That month, orders for the tax stamps that have to be attached to every pack sold in the state fell dramatically.

Specifically during the first month, the Utah Tax Commission sold stamps for roughly 2.8 million packs of cigarettes, approximately half as many as it sold on average for the first five months of 2010, and a drop from the more than 9 million stamps it sold in June, the month before the increased tax took effect.