NYACS Fighting Major Shift in N.Y. Cigar Tax

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NYACS Fighting Major Shift in N.Y. Cigar Tax

03/23/2017

ALBANY, N.Y. — The New York Association of Convenience Stores (NYACS) is coming out against a proposed move to change the state's cigar tax.

In his proposed budget, Gov. Andrew Cuomo recommended restructuring the method of taxing cigars from a percentage of wholesale value to 45 cents per cigar.

"You're talking about a massive shift of tax burden from bluebloods who consult 'Cigar Snob' magazine for recommendations on luxury cigars onto blue-collar customers who buy two-packs at convenience stores," said NYACS President Jim Calvin. "It's not right, and we're determined not to let it happen."

Since January, association members and staff have been meeting with legislators in the state Senate and Assembly to discuss the tax change. According to NYACS, the Assembly leadership supports the switch, while the Senate leadership opposes it. 

As the state budget negotiations enter their final weeks, Calvin urged New York retailers to contact their state legislators now urging them to leave the existing cigar tax structure alone.

According to Calvin, a handmade premium cigar crafted in the Dominican Republic might currently retail for $45 at a fine tobacconist. Its wholesale price would perhaps be $22, making the excise tax either $9.90, using the standard rate of 75 percent of wholesale value, or $6.27, using a state-approved alternative rate of 28.5 percent if the manufacturer's invoice is not available to the wholesale distributor, who prepays the excise tax to the state.

On the other hand, a neighborhood bodega currently sells budget cigars in a package of two for 99 cents. The wholesale price on that package was perhaps 54 cents — 27 cents per cigar — making the New York excise tax either 40.5 cents, if the 75-percent calculation was used, or 15.4 cents, using the 28.5-percent rate, he explained. 

However, "Cuomo's plan would flip that tax dynamic completely upside down," the association said. The tax on the premium cigar would drop more than 90 percent — from $9.90 to 45 cents — while the tax on the bodega two-pack would jump either 140 percent or 341 percent to a new level of 90 cents.

Calvin said the resulting spike in retail prices would trigger an exodus of price-sensitive mass market cigar customers from New York convenience stores to places where the two-pack would be priced "sharply lower" because they don't collect New York State excise tax, including:

  • Neighboring Pennsylvania, where the state cigar excise tax is zero;
  • Native American outlets across New York; and
  • Tax-free mail order tobacco websites.

"This would quickly come to mirror the self-inflicted cigarette tax avoidance epidemic that for years has shortchanged New York retailers, taxpayers, and anti-smoking efforts," Calvin said. "In summary, luxury cigar aficionados would receive a huge tax break, blue-collar cigar consumers would pay through the nose, and tax-collecting convenience stores would lose sales to tax-free competitors."