on 01-24-2009 03:00 
|
By JIM BARON
PROVIDENCE - Who would have thought that buying a pack of smokes could get so complicated?
The House Finance Committee spent hours Friday untwisting the intricacies of taxing a package of cigarettes.
There is the state excise tax, which Gov. Donald Carcieri has proposed boosting by a dollar - from $2.46 to $3.46 per pack - in his revised budget for the current year.
There is the inventory tax to slap the extra dollar assessment on every pack that is already on store shelves, having already been taxed at the lower rate.
And don't forget the sales tax, and the stamping discount - 1 percent of the total tax, according to Carcieri's proposal, for the wholesalers who have to actually apply the stamps to each package of cigarettes.
And that doesn't take into account the minimum markup, actually two minimum markups: one from wholesalers to retailers and the other from retailers to customers, a cost the retailers and wholesalers are required by law to add to the price of each cigarette pack - intended to, according to one state official, "stop predatory pricing" by large retailers.
Carcieri also proposed scrapping the minimum markup in his supplemental budget plan.
The retailers who sell cigarettes and the wholesalers who supply them opposed the $1 hike in the excise tax, but they really, really hated the idea of eliminating the minimum markup.
They contend that the move would wipe out their profit margins and open the door for big retailers like Wal-Mart or the large discount clubs to undercut the smaller stores' prices, potentially putting them out of business.
Cumberland Farms President Ari Haseotes called that part of the governor's plan "hyper-onerous."
Once the General Assembly works that out and decides what to do about the tax and the markup, the federal government is in all likelihood going to come along and slap a 61-cent increase in the federal excise tax on each pack, to help pay for improvements in health insurance coverage for children.
When the hearing was less than halfway through, House Finance Committee Chairman Steven Costantino sighed and confessed, "This is a lot to absorb."
The bottom line: Assuming that the excise tax will be raised by $1, a pack of cigarettes in Rhode Island would cost at least $8.20 if the minimum markup is removed, and $8.92 if the markup is allowed to stay in place, according to state taxation experts.
By comparison, purchasing a pack across the border in Massachusetts, which enforces a mandatory markup, will cost at least $9.07.
Because the higher prices are likely to decrease the number of cigarettes sold, the House panel was told, the additional revenues the state expects to receive will drop in the current year from the governor's estimate of $17.4 million to $16.5 million; next year it will dip from $39.7 million to $39.2 million.
When the governor's supplemental budget was put together, House Fiscal Advisor Michael O'Keefe explained, the 61-cent federal tax bump had not been anticipated.
For Steve Biron, who owns the New England Farms store in Burrillville, the situation is somewhat simpler. If the tax gets increased and the markup lifted, he will lose customers, have to lay off employees, and may decide against purchasing the space he is renting when his lease runs out next month.
When Massachusetts raised its excise tax last June, shooting the price of cigarettes in that state higher than in Rhode Island by about 82 cents, "I noticed a vast increase in cigarette sales," Biron said. The increase was "560 packs a week in the first month alone."
The people who bought those cigarettes also bought more lottery tickets, gasoline, candy, newspapers and all the other things he sells in the convenience store.
He said his lottery sales alone leaped by 20 percent. This past Christmas, when people were buying lottery tickets as gifts, his lottery sales were up 75 percent over the previous year.
He said the Coca-Cola vendor who services his store told him that, after Massachusetts hiked the cigarette tax, a store whose shelves he stocked in Bellingham sold 60 percent less of the soft drink.
"If Massachusetts hadn't increased its tax," Biron told the committee, "I don't know if I would have been able to stay in business."
After the hearing he said that before the Bay State hike, he had to lay off employees, including an assistant manager, and take on more hours himself. In July, after the increase, he hired more help.
So if the Rhode Island tax changes go through, will Biron be able to stay in business? The best answer he could give is, "It depends."
Biron said he is getting a double whammy because large gasoline dealers such as Hess and Cumberland Farms are currently undercutting his gasoline price, making it difficult to make a profit on that product and luring his customers away.
Diana O'Donoghue, executive director of the Rhode Island chapter of the New England Convenience Store Association, said cigarettes represent 33 percent of inside store sales at convenience stores.
"Removal of the cigarette minimum price law and a large cigarette tax increase of $1, if retained in the final bill, will have a devastating economic impact on (convenience stores) and hundreds of other ‘Mom & Pop" stores throughout Rhode Island," she said.
|
