Cigarette tax increase worries convenience store owners

Avinash Moudgil, owner of the MUD Deli in downtown Gloversville, stocks his shelves with bargain-brand cigarettes Friday in advance of Tuesday’s $1.25 per pack hike in the cigarette tax.

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The next three to six months will be critical for mom-and-pop convenience stores dealing with higher cigarette taxes and slumping sales.

Starting Tuesday, the cost of a pack of cigarettes will jump $1.25 because the state tax is increasing from $1.50 per pack to $2.75 per pack.

“The timing is as bad as it can possibly be,” James Calvin, president of the New York Association of Convenience Stores, said Friday.

People who smoke and don’t quit to protest the higher taxes will find cheaper sources for their cigarettes, including Indian reservations and border states with significantly lower taxes, he said.

“The primary concern all along for us has been the reservation tax evasion and how that is going to dramatically affect sales in convenience stores,” Calvin said.

Calvin said the group thinks the average store will lose 30 percent of its sales volume after the tax hike goes into effect. The number will vary depending on the proximity of the store to border states or reservations.

“But everybody is going to lose a lot of cigarette sales,” he said, sales that retailers depend on to generate traffic in their stores and, consequently, additional purchases.

“I’m very fearful what’s going to happen to mom-and-pop convenience stores in the next three to six months,” he said. “It’s going to be a disaster.”

Those stores are already hurting from lagging sales, according to shop owners.

Tax-free quandary

A Department of Health survey found half of New Yorkers who smoke admit to buying tax-free cigarettes. An economic study conducted on behalf of the convenience store association estimated that tax evasion from reservation sales amounts to $1.6 million per day.

The state takes in just under $1 billion a year in cigarette taxes; the study estimated that another $1 billion a year was lost to reservation and black-market sales.

But Tom Bergin, a spokesman for the state Department of Taxation and Finance, said there’s no real way to know.

“Without disparaging certain groups or individuals, we’ve never been able to determine how much is lost in situations like this,” he said. “Over the years, people have taken plenty of guesses but there’s really no way to know it.”

He said officials do know that criminal trafficking will increase as a result of the tax increase. The state arrests hundreds of people a year for transporting or selling untaxed cigarettes.

“Our response is to go after those traffickers very aggressively. We always work closely with local law enforcement authorities,” he said.

The state has yet to enforce a law, which dates to the Pataki administration, that requires reservations to report cigarette sales and to pay taxes. But the Indians contend that they’re sovereign nations and not subject to state authorities.

“Everyone is in agreement this is a difficult issue to resolve,” Bergin said. “I think the administration is doing the best it can to resolve that issue.”

local sales woes

Conventional retailers are bracing for a downturn in cigarette sales once the new taxes take effect.

“It will have an impact on our business,” Gary Cunningham, a category manager for the Saratoga Springs-based Stewart’s chain, said. “There’s a lot of questions. Will they quit? Will they find other ways to buy? We have a lot of questions,” he said.

Stewart’s has 325 shops, 10 of which are in Vermont. Cunningham said there is “an interesting border phenomenon” between New York and Vermont. A couple of years ago, Vermont’s cigarette tax was significantly lower and New Yorkers made it a point to buy in Vermont.

Then it flip-flopped when Vermont instituted a tax higher than New York’s “and now it’s going back the other way,” he said.

Avinash Moudgil, owner of the MUD Deli in downtown Gloversville, said rising taxes and slumping sales can be a lethal combination for a small business.

“You have to find some other way to make a living,” said Moudgil, who has run the business for seven years. “Bills are going higher and higher, taxes are going higher and higher. Where do you get the money?”

He said people haven’t really been stocking up in advance of the new tax but expects business will pick up, a sentiment echoed by Eddy Abraham of Naif’s Grocery, also in Gloversville, and by Cunningham.

Abraham said he ordered extra cigarettes in anticipation of the tax hike. “I think people are going to buy a lot of them between now and Tuesday,” he said Friday afternoon.

He said the profit margin on cigarettes is a relatively low 7 percent, and he thinks the government is unfairly targeting smokers.

“You’re hitting a small percentage of the population. As a store owner I think it’s wrong and as a consumer I think it’s wrong,” Abraham said.

quitters

Tony Brown, who smokes between a half-pack and a pack of cigarettes a day, agreed.

“I think it’s robbery, to tell you the truth. Come on. I know a bunch of people, that’s all they do, they go to the reservation to buy cigarettes,” he said.

Other smokers said the price hike could mean quitting time.

“I’m really seriously considering quitting with this buck and a quarter [increase],” Heidi Meher said after forking over $10 for two packs of Marlboro Lights at Naif’s Friday. “They’ve taken everything else away.”

Linda Cunningham stopped by the store to pick up the paper and said she already gave up smoking, tired of high prices and concerned about her health. “I quit a year ago February,” she said.

She’s not alone.

Claire Pospisil, a spokeswoman for the state Health Department, said there is a downward trend among people who smoke. Figures from 2007 show 18 percent of New Yorkers, or 2.7 million adults, smoke.

The percentage of high-school students who smoke stood at 13.8 percent, down from 32.9 percent in 1997.

Smoking claims the lives of 25,500 New Yorkers every year, despite the fact that the state spends $83 million a year on “tobacco control.”

“We do tons of things,” Pospisil said. “We fund 19 tobacco control cessation centers throughout the state. They basically work with people to help them stop smoking. We run the Quit Line and we expect additional calls to that.”

DOH also supported the Clean Indoor Air Act, which bans smoking in most indoor public places, and launched a media campaign to encourage doctors to talk to patients about the dangers of smoking.

And DOH Commissioner Dr. Richard F. Daines has asked the federal Food and Drug Administration to allow nicotine gum to be sold in small quantities at convenience stores, on display right next to the smokes.

People who call the state’s Quit Line, 1-866-NYQUITS, can talk to a counselor and formulate a plan to improve the odds of successfully kicking the habit. They can also obtain a two-week supply of nicotine gum or patches for free.

“We know it’s very difficult for people to quit and we’re doing everything that we can to provide smokers with the resources they need. And raising the price of cigarettes is one of the most effective ways to get people to quit,” Pospisil said.

“We expect that with the increase in the cigarette tax that 243,000 New York kids will not start smoking,” she said. “Our goal is to have one million fewer smokers by 2010.”