Governor Paterson's Proposed Tax Hike on Tobacco is Outrageous, Irresponsible and Revenue Negative.
Ignoring once again the crippling financial burdens facing New York’s small businesses, the newest proposal by Governor Paterson to increase the Other Tobacco Products (“OTP”) tax from its current 46% of wholesale to 75% is outrageous, irresponsible and revenue negative for the State.
Just over a year ago, the State of New York implemented an OTP tax increase from 37% of wholesale to 46% of wholesale. This increase put New York State’s OTP tax significantly higher than the OTP tax of neighboring states. Comparing the first quarter of 2010 to 2009, Professional Tobacconists across the state of New York lost a devastating 20-30% in customer transactions. But don’t be fooled, these customers have not quit enjoying their premium cigars or pipe tobaccos, rather they simply buy their tobacco elsewhere, either in a neighboring state or online. Further increasing the OTP tax will only continue to drive customers away from New York, resulting in a loss of not only OTP tax but also sales tax, as well as much needed revenue for already struggling small businesses, many that are small family owned shops passed down through generations.
Nationally, the average price of a premium cigar is between $8.00 and $12.00, but for New Yorkers a $10 cigar costs $12.30, 23% higher because of current tobacco taxes (46%). With the proposed tax increase, that same cigar will cost New Yorkers $13.75. If that doesn’t seem significant at first glance, this increases the cost of a box of these cigars (25 cigars per box) from $307.50 at the current rate to $343.75 at the proposed 75% in New York State. But here’s the kicker; drive to Connecticut (27.5% OTP) and that same box of cigars will cost $284.38; a savings of $59.37 for New Yorkers. Worse, with a visit to nearby Pennsylvania (0.00% OTP) the very same box of cigars costs just $250, which saves the consumer $93.75 per box at a 100% loss to New York State and its small businesses. Add to that the aggressive discount tactics by out-of-state retailers for high volume purchases, and Governor Paterson’s proposed revenue will disappear; taking with it hundreds of small businesses and more than a thousand much needed jobs.
Once this proves to be revenue negative, which industry’s small businesses will New York State target next? It is time for New York State to think responsibly, economically and long term. More importantly, it is time to think competitively as a state. And as a State we need to tax in a manner that will cultivate existing customers and attract new customers to our local businesses so that they can survive and thrive for years to come. We can’t keep allowing our government -- OUR government-- to continue to raise taxes with impunity on the legal products we enjoy, in short-sighted and ill-conceived attempts to make spreadsheets more attractive, and kick the ball of problems forward to next year only for the State to implement another tax on another industry, which will once again fail, and leave us in the same situation… broke.
CRA is urging all members contact the legislative leadership noted below, and the governor's office, to voice your opposition to this tax increase on cigars.
Michael Herklots
Just over a year ago, the State of New York implemented an OTP tax increase from 37% of wholesale to 46% of wholesale. This increase put New York State’s OTP tax significantly higher than the OTP tax of neighboring states. Comparing the first quarter of 2010 to 2009, Professional Tobacconists across the state of New York lost a devastating 20-30% in customer transactions. But don’t be fooled, these customers have not quit enjoying their premium cigars or pipe tobaccos, rather they simply buy their tobacco elsewhere, either in a neighboring state or online. Further increasing the OTP tax will only continue to drive customers away from New York, resulting in a loss of not only OTP tax but also sales tax, as well as much needed revenue for already struggling small businesses, many that are small family owned shops passed down through generations.
Nationally, the average price of a premium cigar is between $8.00 and $12.00, but for New Yorkers a $10 cigar costs $12.30, 23% higher because of current tobacco taxes (46%). With the proposed tax increase, that same cigar will cost New Yorkers $13.75. If that doesn’t seem significant at first glance, this increases the cost of a box of these cigars (25 cigars per box) from $307.50 at the current rate to $343.75 at the proposed 75% in New York State. But here’s the kicker; drive to Connecticut (27.5% OTP) and that same box of cigars will cost $284.38; a savings of $59.37 for New Yorkers. Worse, with a visit to nearby Pennsylvania (0.00% OTP) the very same box of cigars costs just $250, which saves the consumer $93.75 per box at a 100% loss to New York State and its small businesses. Add to that the aggressive discount tactics by out-of-state retailers for high volume purchases, and Governor Paterson’s proposed revenue will disappear; taking with it hundreds of small businesses and more than a thousand much needed jobs.
Once this proves to be revenue negative, which industry’s small businesses will New York State target next? It is time for New York State to think responsibly, economically and long term. More importantly, it is time to think competitively as a state. And as a State we need to tax in a manner that will cultivate existing customers and attract new customers to our local businesses so that they can survive and thrive for years to come. We can’t keep allowing our government -- OUR government-- to continue to raise taxes with impunity on the legal products we enjoy, in short-sighted and ill-conceived attempts to make spreadsheets more attractive, and kick the ball of problems forward to next year only for the State to implement another tax on another industry, which will once again fail, and leave us in the same situation… broke.
CRA is urging all members contact the legislative leadership noted below, and the governor's office, to voice your opposition to this tax increase on cigars.
 | Sheldon Silver, Speaker Email: Sheldon Silver  Telephone: 212-312-1420 Postal Address: 250 Broadway Suite 2307 New York, NY 10007 |
 | John Sampson, Senator Email: John Sampson Telephone: 718-649-7653 Postal Address: 1222 East 96th Street Brooklyn, NY 11236 |
 | Governor David Paterson Email: Governor David Paterson Telephone: 518-474-8390 Postal Address: State Capitol Albany, NY 12224 |
 | Pedro Espada, Senator Email: Pedro Espada Telephone: 518-455-3395 Postal Address: Capitol Building Room 420 Albany, NY 12247 |
 | Carl Kruger, Senator Email: Carl Kruger Telephone: 718-743-8610 Postal Address: 2201 Avenue U Brooklyn, NY 11229 |
 | Malcolm A. Smith, Senator Email: Malcolm A. Smith Telephone: 718-528-4290 Postal Address: 205-19 Linden Boulevard St. Albans, NY 11412 |
 | Jeffrey D. Klein, Senator Email: Jeffrey D. Klein Telephone: 718-822-2049 Postal Address: Capitol Building Room 427 Albany, New York 12247 |
 | Eric Adams, Senator Email: Eric Adams Telephone: 718-284-4700 Postal Address: 572 Flatbush Avenue Brooklyn, New York 11225 |
Michael Herklots
