Published Sunday, July 14, 2002
MERCER COUNTY AREA
by state tax hikes
Herald Business Editor
When Joe Wilson was in school 30 years ago he recalls chums who smoked railing over what they thought were exorbitant prices for cigarettes.
"They said when the price hits 50 cents a pack they were going to quit smoking,'' said Wilson, who owns The News Depot in Greenville. "Now the taxes alone on a pack of cigarettes are more than that.''
Starting Monday in Pennsylvania it's going to be a whole lot more. That's when the state excise tax on cigarettes hits $1 for a regular pack, a 69 cents jump. Couple that with the regular 6 percent state sales tax along with the 39-cents-a-pack federal tax has left smokers huffing and puffing mad. Smokers buying cigarettes in Philadelphia or Allegheny counties will have to pay an additional 1 percent local tax per pack.
In order to shore up budget shortfalls due to a sluggish economy, Pennsylvania was among 17 states to enact tax hikes on cigarettes. Ohio increased its cigarette tax to 55 cents a pack, a 31 cents increase, on July 1.
Pennsylvania expects the hike will create $574.5 million in new revenue for the state in the upcoming year while Ohio expects its increase will net an extra $283 million. All the taxes will go into the general budget fund for both states.
These tax hikes have left retailers such as Wilson wondering how it will affect their cigarette sales.
"I would say most of the people who smoke know about it,'' he said. "But I don't think people realize how much taxes they pay for cigarettes.''
Dave Knopp, owner of Grove City County Market is taking no chances. Last week he began erecting signs at his cigarette display area notifying customers of the tax jump.
"I'm not sure if all my customers are aware of this,'' Knopp said.
Notified by his supplier that the retail price for a 10-pack carton of some premium brands will top $41 starting Monday, Knopp believes it could push a decline in sales.
"At some point there will be some resistance for customers to put up that much money,'' he said. "It may make people quit smoking. That's good, it may make us all a lot more healthier.''
A concern among store owners is the longer an item sits on their shelves the longer it takes to recoup their money. Even a small store owner can have $20,000 wrapped up in cigarette inventory.
Knopp declined to give a dollar figure on his store's cigarette stock but said it equaled that of his dairy department.
"It's a significant amount of money,'' Knopp said.
Another tool used by Pennsylvania and Ohio that increases the price of cigarettes is a minimum markup regulation for wholesalers and retailers. While not a tax, the regulation requires these markups be passed along.
In Ohio the minimum markup wholesalers must asses retailers was hiked from 2.5 percent to 3.5 percent and retailers must pass along a minimum 8 percent price increase as opposed to the previous 6 percent.
Pennsylvania left its minimum markup unchanged at 4 percent for wholesalers and 6 percent for retailers. In both states the markups are added after the tax increase has been added.
Both states said they created the minimum markups to benefit smaller retailers.
"Really, it was a strategy to attempt to create a level playing field between the big retailers who buy in huge quantities and conceivably who can get a lower price, and smaller retailers who don't have that operational advantage,'' said Gary Gudmundson, communications director for the Ohio Department of Taxation.
At Mr. D's Food Fair in Brookfield, co-owner Ed D'Onofrio said he's only seen a slight decrease in cigarette sales since the tax hike in Ohio went into effect. But based on conversations he's overheard among his smoking employees during lunch breaks, the saber rattling has begun.
"You hear people say I'm cutting back or I'm quitting,'' D'Onofrio said. "But whether they're doing that or not I can't say,'' D'Onofrio said.
In talking with local smokers the tax hike has had mixed reactions from lighting a fire under some to quiet resignation that taxes are a part of life.
"This is the last straw,'' said Tom Gilson. owner of Whitehead-Eagle Corp. in Sharon. "I've got to quit for my own health.''
Larry Reichard said it may be the right time for him to kick the habit. He said he recently bought a Nicorette nicotine patch which helps smokers kick the habit.
"The wise thing to do economically would be to quit,'' Reichard said. "I'm seriously considering it.''
Suzanne Smiley, a secretary at Butler Wick & Co., said the tax hike drew her ire.
"That's crazy,'' Miss Smiley said. "But I'm still going to buy them.''
But health concerns has her vowing to flick her last cigarette.
"The tax raise has nothing to do with me quitting,'' she said.
Paul Neully, Sharpsville, said higher prices wouldn't inspire him to quit as he puffed on a cigarette during a break from work at Sharon Regional Health System.
"I ain't quitting ... when they went up to $3 a pack, I didn't quit. It doesn't matter if cigarettes go up to $5 a pack, I'd still smoke. As far as I know it's a free country and it's our given right to smoke," he said.