California Voters Give C-Stores a Break

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California Voters Give C-Stores a Break

SACREMENTO -- California voters rejected two ballot tax initiatives that would have greatly affected convenience retailers in the state. The initiatives focused on creating a tax for oil produced in the state, as well as an increase in taxes on tobacco products -- including smokeless -- by approximately 300 percent.

Proposition 87, the costliest ballot initiative in the state's history, looked to establish a tax on state oil production that would fund alternative energy research. The initiative failed Tuesday, despite endorsements from celebrities and a former president, reported The Associated Press.

The proposed act would have taxed oil companies that drill for oil in the state, which is the third largest oil producer, until taxes totaled $4 billion. That money would be used to create incentives for alternative energy research, alternative fuel vehicles, energy-efficient technologies and education and training, the report stated.

Supporters, including Hollywood producer Stephen Bing; former president Bill Clinton; former vice-president Al Gore; and celebrities such as Warren Beatty, Julia Roberts and Geena Davis, spent more than $57 million for its enactment. They took the stance that the proposal would wean the state off its reliance on foreign oil while helping eliminate greenhouse gasses. "We have the worst air in the country," said Beatty during a pro-Proposition 87 campaign party.

They argued that while oil companies pay a fee to drill in the state, they do not pay enough to draw oil from the state, as in Alaska and Texas. Proposition 87 would have taxes oil producers between 1.5 percent and 6 percent for the production, depending on the price per barrel, the report stated.

Chevron and Aera Energy lead the oil company's side with campaigns totaling $100 million to defeat the measure. "Proposition 87 was full of holes: higher fuel costs, more bureaucracy, cuts funding for firefighters -- bad idea," Scott Macdonald, a spokesman for the No on 87 campaign, told the AP.

Oil companies shot down the supporters' arguments, stating that foreign dependence on oil would increase, as oil companies would cut production or leave the state. A commercial emphasized the point by proclaiming that residents would have to pay a higher price for gas if the ballot passed.

This is not the first ballot that would directly affect fuel retailers' bottom lines. Earlier this year, Governor Arnold Schwarzenegger -- who was re-elected on Tuesday -- signed a measure that would directly increase the price of gas, making it a harder sell in the state. The bill, AB 32, cosponsored by the Natural Resource Defense Council [NRDC], required utility plants, oil and gas refineries and other sources to reduce carbon dioxide emissions and greenhouse gases by an estimated 25 percent by 2020, an initiative beginning in 2012.

To meet the 25 percent reduction rate within the time frame approximately 17 percent of natural gas would need to be reduced, according to Tupper Hull, director of strategic communications for Western States Petroleum Association (WSPA). "When you reduce natural gas production by 17 percent you have to figure that you are also reducing fuel by 17 percent," he said. "I don't see how people will get the gas and diesel they’ll need if that happens."

Jay McKeeman, government relations director for California Independent Oil Marketers Association [CIOMA] noted "The bill has been primarily aimed at companies with large carbon emissions and transportation has been left at the side of the discussion," he continued. "But this bill will reduce the amount of fuel available to consumers and that drives up cost."

"These new requirements affect all aspects of the economy from manufacturers to (homeowners) keeping their lights on," said California Chamber of Commerce spokesman Vincent Sollitto. Among the Chamber's members are a multitude of convenience stores, and one of the effects of the bill directly targets them. "Higher fuel prices will have an affect on convenience store traffic and ancillary purchases," he said.

Proposition 86
The other measure that failed to pass on Tuesday was Proposition 86, a $2.60 tax increase on cigarettes that would generate $2 billion for hospitals to improve emergency care and fund smoking cessation programs. Approximately 3.5 million voters, or 52 percent, shot down the ballot that would bring a pack of cigarettes to almost $7, reported the San Diego Business Journal.

Opponents of the ballot, including retailers, R.J. Reynolds, Philip Morris and the Cigar Association of America paid out $7 million as of August to defeat the measure. Their stance: that the measure included anti-trust language that allows hospitals to price-fix.

The ballot would exempt hospitals from parts of federal and state antitrust laws that would allow them to share specialists, including emergency personnel, according to Jesse Markham Jr., head of a firm wide antitrust practice at Morison & Foerster.

Opponents also claimed that a tax increase would cause an increase in tobacco smuggling as well.

At a NACS Show 2006 session on tobacco, Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO), warned that Proposition 86 would raise the state excise tax on cigarettes by an unprecedented 300 percent. In addition, the tax on cigars, pipe tobacco and smokeless tobacco would almost triple.

Such an enormous tax increase on a legal product would have all kinds of negative ramifications, including reducing volume sales, forcing many cigar stores out of business, encouraging illegal cross-border trading and other illegal activities to get around the tax, said members of a panel that included Mark Cassar of Kretek International; Terry Gallagher of Smoker Friendly/Gasamat Oil Corp. of Colorado, Richard Griffin of BP, Gary Bowman of Swedish Match, and Zane Powell of ConocoPhillips.

"It's dangerous when it becomes a ballot initiative because many voters don't take the time to understand the issues," said Bowman. And retailers warned that the problem is not isolated to California. "If you think it's not your problem, think again," said Gallagher.

For many states, it became their problem on Tuesday, as ballots to increase the price of tobacco products or limit the areas where smoking is allowed were passed in four states. Arizona, South Dakota, Nevada and Ohio all passed measures that will affect convenience retailers' tobacco categories.

In Arizona, 53 percent of voters approved an increase in cigarettes by 80 cents a pack. It also passed a restrictive smoking measure by 54 percent. South Dakota approved a ballot that would increase cigarette tax $1 a pack by 61 percent of voters. Nevada and Ohio also passed the more restrictive smoking initiatives by 54 and 58 percent, respectively.

Some managed to squeak by without passing the ballots in this election. Besides California, Missouri voters denied a cigarette tax increase of 80 cents a pack and 20 cents for other tobacco products.