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.

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