Texas Cigarette Tax Hurts Retailers

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Texas Cigarette Tax Hurts Retailers

DALLAS -- In the first two months since the state of Texas implemented a $1 tax increase on cigarette packs, the state collected $53.3 million more in tobacco tax revenue compared with the year ago results, according to the comptroller's office. However, convenience retailers in the state are reporting cigarette sales down 12 percent, The Associated Press reported.

Industry lobbyists claim that cigarette sales in c-stores have dropped 12 percent statewide since the tax hike was implemented, and those stores located near bordering states that have cheaper taxes -- including New Mexico at 91 cents per pack; Arkansas at 59 cents; and Oklahoma at $1.03 -- are suffering from even steeper sales losses.

The dollar increase added to the previous tax of 41 cents. Even though the new rate generated nearly $125 million in cigarette taxes collected through February, it's too early to project whether the state will meet its previous estimate of $1 billion raised by the end of the fiscal year, said comptroller spokesman R.J. DeSilva.

"We want to take a look at sales for several months before looking at any trends," DeSilva told the AP.

Lawmakers passed the cigarette tax increase -- the first for the Lone Star state since 1991 -- to help balance cuts in local property taxes.

Concerns over a spike in cigarette smuggling once carton prices were raised $12 appears to be groundless, according to the U.S. Customs and Border Patrol. The largest seizure reported so far was 25 cartons hidden inside a car in Hidalgo, Texas, said Rick Pauza, a spokesman for the agency's field office in Laredo, Texas.

"We haven't seen anything major," Franceska Perot, spokeswoman for the Bureau of Alcohol, Tobacco and Firearms in Houston, told the AP.

The biggest shift since the tax hike is a nearly tenfold spike in cigarettes surrendered at the border of Mexico. With drivers looking to skirt the $1 increase, the Texas Alcoholic Beverage Commission said the agency confiscated about 2,700 cigarette packages at entry ports through February -- up from less than 300 in the first two months of 2006.

However, convenience stores are not throwing in the white flag yet. Stores are optimistic that their sales will improve later this year, according to Doug DuBois, director of membership services and governmental affairs for the Texas Petroleum Marketers and Convenience Store Association.

"This is about what we expected," DuBois said.