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Kentucky Retailers Get Ready for Tax Hike

LOUISVILLE, Ky. -- Kentucky has the highest percentage of smokers and the lowest cigarette taxes in the nation, but it's about to lose one of those distinctions, reports The Courier-Journal.

On June 1, the state tax on a pack of cigarettes will rise from 3 cents to 30 cents, an increase of 27 cents per pack and $2.70 per carton. Although the new rate will still be among the nation's lowest, Louisville, Ky., retailers are bracing for a late-May run on cigarettes as smokers stock up to beat the tax.

Kroger has posted signs at cigarette counters announcing the increase and asked stores to boost cigarette inventories by a third.

The last week of May "is when we would anticipate the biggest demand," said Kroger spokesman Tim McGurk.

Smoke shops and smaller retailers also will be keeping a close eye on their cigarette supplies.

"Toward the end of the month I think we're going to see a great influx of business," said Bill Grantz, co-owner of the area's Cox's Smokers Outlet stores.

And it's not just Kentucky smokers who retailers expect to see.

Indiana taxes currently add nearly $5.50 more per carton than in Kentucky, and the deep discounting on cigarettes in Kentucky is forbidden by Indiana regulations that set minimum prices. As a result, a carton of Marlboros costs nearly $9 more at a Kroger in Jeffersonville, Ind., than at a Kroger in Louisville.

So a lot of Hoosiers already cross the border to buy their cigarettes.

"I've got people driving 50, 60, 70 miles from Indiana picking up cigarettes for themselves and their family and friends," Grantz said.

His outlets give smokers a heads-up on the pending price hike with alerts on the marquees outside and signs on the inside.

There hasn't been a lot of extra buying yet, said Marvin Gray, executive director of the Kentucky Tobacco and Candy Association, a wholesalers' lobbying group. "I don't know if (smokers) are fully aware of it; they won't fully recognize it until June 1."

Theoretically, cigarettes in a sealed carton will stay fresh for more than a year, so a dedicated smoker might be willing to buy 50 or even 100 cartons before the deadline to save hundreds of dollars.

Not everyone is convinced the run on smokes will be extreme.

"I'm sure the last week of the month you'll see smokers buying an extra few cartons," said Dave Nash, vice president of sales for Louisville distributor John F. Trompeter Co. "But with the price of gas right now and the current economic situation around town, a carton of cigarettes is $20 or $30, so how many can you buy to save the $2.70?"

Convenience store chains that operate in other states as well as Kentucky say they'll be watching their cigarette inventories but have seen much higher tax increases elsewhere -- and without too much fuss from smokers hoarding carloads of cartons.

"Will your average person buy a couple more cartons? Yeah, but to be honest with you, just from my experience in other states, it doesn't get crazy," said Mike Parker, senior director of sales and marketing for Louisville-based Thorntons Inc., which operates more than 150 convenience stores in Kentucky, Ohio, Indiana, Illinois and Connecticut. "I don't think you're going to see a huge sales spike in that last week."

Retailers and their representatives say the tax increase won't be enough to make people stop smoking, but it will take sales away from other items at convenience stores like snacks, sandwiches and drinks.

Kentucky stores want enough cigarettes on hand for the rest of the month but can't afford to be over-zealous: They expect a drop-off in sales after the tax goes into effect.

Worse, they don't want to pay the state a big penalty for having too many leftovers. Worried that retailers and wholesalers might reap windfall profits on lower-taxed cigarettes sold at a higher price after June 1, the Kentucky General Assembly enacted a one-day tax of 27 cents for each pack of cigarettes a seller has as of midnight May 31.

Some stores -- Thorntons, for instance -- limit the number of cartons a single customer can buy. They want to make sure they have enough for all their customers as well as prevent competitors from snapping up inventory.

Grantz wonders how much Hoosier business he'll lose once the Kentucky price gets a bit closer to Indiana's.

"With the (cigarette price) gap narrowing and the price of gas what it is now, I think it will affect some of that business," he said. "I think people close to the border (in New Albany and Jeffersonville) will still come; people 50 to 60 miles out will think twice before they come down."

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