Still No Relief

Collecting excise tax on cigarettes sold on tribal reservations hasn’t helped N.Y. c-stores

It’s been more than two years since the courts gave New York State the go-ahead to collect an excise tax on national brand cigarettes sold on Native American reservations in the state. The move should have been a win for competing convenience stores, which had been at a price disadvantage due to the state’s $4.35-per-pack levy. The reality, though, is that c-stores across the Empire State are still suffering the effects of having the highest state cigarette excise tax in the country.

Jim Calvin, president of the New York Association of Convenience Stores (NYACS), said Gov. Andrew Cuomo’s administration won its legal challenge to collect taxes on national brand cigarettes that are shipped through the conventional chain of supply — manufacturer to licensed wholesale distributor to retail stores. However, after the ruling, the Native American tribes instead decided to stop selling national brands and no longer accept delivery of brands such as Marlboro, Camel and Newport through those traditional channels.

“In the three to six months following the start of enforcement, national brand product in tribal stores in New York started drying up and by the end of about six months, the national product was virtually gone from the shelves in tribal stores,” Calvin explained. “That led to a significant increase in sales of national brand cigarettes in the non-tribal stores in closest proximity to those tribal enterprises. But the significant increase didn’t last long. The sales quickly flattened out and, in some cases, began to drop again.”

Part of the problem, according to Calvin, is that cigarettes manufactured by the Native American tribes are still not subject to the state levy. Some tribes were already making their own brands and those that weren’t began to do so. “They simply substituted their own brand for [the] national brands they had been carrying up to that point. Their tobacco business continued to flourish,” Calvin said.

New York convenience store retailer NOCO Inc. saw “a minor blip up” in cigarette sales at its NOCO Express stores immediately following enforcement, but that uptick soon died down.

“A lot of the tribes were able to use the money they had saved on the taxes to build their own brands,” explained Mike Newman, executive vice president of NOCO. “What we are finding now [is that] Native American brands that avoid all the taxes are now a big piece, or at least a share of the market. It really just displaced the existing premium smoker to a Native American brand.”

While some smokers are loyal to their brands, Native American tribes were able to use things like taste profiles to mirror some of the major brands, Newman added. “Not only were they switching people because of price, but they were offering them a similar taste profile,” he said.

In addition to turning to tribal brands, smokers began looking for other options — think black market and counterfeit cigarettes. “The illegal trade in national brand cigarettes increased sharply and as a result, the stores that initially saw a bump in their sales volume saw the bump disappear and in some cases, resume the decline they had been experiencing,” NYACS’ Calvin explained.

According to the association head, many New York c-stores are no better off now than they were prior to the start of enforcement. In fact, many retailers and wholesalers continue to report a significant drop year to year and month to month in their taxable-sales cigarettes.

“The cigarette tax evasion epidemic had already been allowed to get so big. It had become such a pervasive problem that addressing only one part of it only fed another part of it,” Calvin said. “There is such a clamor for untaxed or lower-taxed cigarettes in New York State that it is out of control. It is proving almost impossible to put the genie back in the bottle.”