General Store in Riverside.
Convenience store operators are worried about the effect a proposed 75-cent
per-cigarette pack increase could have on their businesses.
According to the Federation of Tax Administrators, Rhode Island trails only New Jersey in excise tax rates that states put on cigarettes (the federal cigarette tax is 39 cents per pack). New Jersey set its per-pack tax at $2.05, with Rhode Island at $1.71.
The proposed increase in Rhode Island’s tax, which would be the fourth year in a row the state has looked to tobacco sales to shore up its budget, would set that rate at $2.46, rivaling only New York City’s rate. The city imposes an additional $1.50 tax onto the state’s $1.50 rate.
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Connecticut and Massachusetts, likely leery of cross-border trafficking, both have their rates set at $1.51. As of Jan. 1, the median excise tax rate for the 50 states and the District of Columbia was 60 cents.
“You’re relying on one segment of the population to balance the state budget,” said Arthur J. DeBlois III, president and CEO of DB Companies Inc., which operates 27 convenience stores in Rhode Island and other DB Marts in Massachusetts, Connecticut and the Hudson Valley area of New York. “Give us a break,” he said. “Enough is enough.”
Jeff Neal, a spokesman for Gov. Don Carcieri’s office, said while he understands the concern some store owners may have over a loss of business, multi-year increases are not out of the ordinary for many states.
“In essence, Gov. Carcieri sees a nexus between public health and state revenue that makes raising the tax a viable solution,” said Neal, who added that the governor’s currently proposed budget already “proposes some difficult cuts,” even when counting all the revenue from the potential increase.
He said the governor was also relying on information from the state Department of Health, which has sided with studies that show raising the price of cigarettes is a more effective method of curtailing consumption than any smoking cessation programs. He said one such study had found that for every 10-cent increase in a pack of cigarettes, youth consumption dropped by 7 percent, while the drop in overall consumption was somewhere between 3 percent and 5 percent.
Asked if there had been talk of implementing only a portion of the proposed increase, Neal said not from the governor’s office.
“It would be very problematic to try and start seriously stripping the state’s needed social programs for its neediest citizens to save the price of a pack of cigarettes,” he said.
Catherine A. Flaherty is the executive director of the New England Convenience Store Association, which has about 200 members in Rhode Island and about 2,000 members throughout the region. She said her association’s members saw decreases in their pack sales throughout the region last year, typically in the range of 14 percent to 15 percent, while the only state reporting any increase being New Hampshire – where the excise tax was only 52 cents.
“It’s not just the sales of cigarettes these owners are losing,” Flaherty said. “People not coming into the store to buy cigarettes means they’re also not coming in to buy gas, milk or lottery tickets.”
Richard Buckett, who opened his Buckett’s General Store nearly a dozen years ago in Riverside, estimated that his cigarette sales are down about 30 percent from two years ago, and more than 15 percent for the store overall.
“Business is way off,” said Buckett, who is starting to consider other directions his single store could head in to remain viable. “The store is dying because you lose the foot traffic.”
Buckett said his customers freely admit that they’ve turned to the Internet and up to New Hampshire for cartons of cigarettes, which they then divvy up once they return to Rhode Island. He said the small cigarette wholesaler he’s done business with for the past 11 years is also feeling the crunch.
“Everything (state officials) put forward we try to fight and they seem to keep pushing whatever they want through. I really think tacking on another 75 cents might be more than my store can handle.”
Flaherty said cigarettes remain the No. 1 product in New England convenience stores (where the sale of alcohol is not allowed, unlike in many other parts of the country), accounting for between 40 percent and 50 percent of all sales. While ancillary sales numbers are hard to calculate, she said the difference has definitely been felt, especially in a business where she said the majority of stores are operating on a pre-tax profit somewhere in the neighborhood of $20,000.
Flaherty said the difference another increase could make is especially significant for the “mom and pop” single-store operations that make up about 70 percent of the convenience stores in Rhode Island.
“You’re really working on pennies in this industry,” Flaherty said.
DeBlois said with every tax increase, his stores lose more legitimate business to Native American dealers, who are exempt from sales tax when selling cigarettes on tribal land, and Internet sites, which DeBlois accused of often moving illegally re-imported cigarettes. He also said online sales offer few regulations stopping the sale of cigarettes to teenagers, with the sole control on most sites being the requirement for a purchaser to click a button stating that they are 18 years old.
Jamie Drogin, manager of media affairs for Philip Morris USA, said the tobacco giant has long questioned how valid studies were that showed a correlation between price increases and people quitting smoking. Instead, she pointed to how Web sites selling cigarettes numbered between 150 and 250 just a few years ago. She said that count has now grown to more than 500.
Pointing to increases in illegal across-the-border activity that has been reported by the Bureau of Alcohol, Tobacco and Firearms, Drogin said increased taxes are a further incentive for normally law-abiding citizens to engage in illegal activities. She said organized crime groups have found it relatively easy to cash in on an increasing valuable commodity that’s easy to move and one where the criminal penalties remain relatively low.
“Driving the price up creates conditions that are ripe for the black market,” said DeBlois, who added that with most cashiers at convenience stores having less than $125 on hand, cigarette cartons are now frequently targeted by robbers.
Neal said the governor’s budget had already factored in an assumed drop in consumption of cigarettes, both from over-the-border “leakage” as well as from smokers who give up the habit. Because of differing tax structures in Connecticut and Massachusetts, he said the wholesale tax added to cigarettes sold in the states adds to the per-pack costs – making Rhode Island’s prices competitive, although still higher by 20 cents to 30 cents a pack.
DeBlois said he has a problem with legislating so-called “sin taxes,” and said cigarettes are as legitimate a product as liquor or cheeseburgers, although neither of those goods faces excise taxes.
“This could result in a huge set of unintended consequences that have a major impact on businesses and individuals,” DeBlois said. “And are they going to do it again next year? Enough is enough.”
