MEMORANDUM IN SUPPORT: Cigarette Tax Enforcement and Marketing Standards Reform
S.5701a by Senator Golden / A.8064a by Assemblyman Ortiz
AN ACT to amend the tax law and the state finance law, in relation to the creation of the cigarette tax enforcement fund; and making an appropriation therefor
The New York Association of Convenience Stores is a private, not-for-profit trade organization representing 8,000 neighborhood mini-marts and convenience stores that are registered with the State of New York to responsibly sell legal tobacco products to adult customers in accordance with the Tax Law, the Public Health Law, and the Cigarette Marketing Standards Act.
As legitimate business owners who have been forced to suffer the ill effects of rampant cigarette tax evasion for the past 10 years or more, we commend Senator Golden and Assemblyman Ortiz for proposing a sensible, balanced plan to address it. We strongly support S.5701a/A.8064a and urge its passage, for the following reasons:
It provides New York State with a new source of revenue to fight illegal cigarette trafficking.
Pervasive cigarette tax evasion in New York is well documented. The Tax Foundation, the Mackinac Center for Public Policy, and even the U.S. Food and Drug Administration have issued reports showing that 60 percent of all cigarettes consumed in New York are purchased without collection of any New York State tax whatsoever. Based on FY 2014 taxable sales, the new Cigarette Tax Enforcement Fund created by this bill would generate $12 million in additional revenue to bolster cigarette tax enforcement and recapture lost tax receipts.
It increases the price of cigarettes in New York State by about 5 percent.
Public health advocates have long contended that higher prices make cigarettes less accessible to minors and provide added financial incentive to existing smokers to quit. Some parties have expressed concern that the increase in taxable retail price would actually drive more smokers to border states, Indian reservations, and the black market. But if the new 4-cent-per-pack Cigarette Tax Enforcement Fund is used wisely and with conviction, the opposite will occur – New York will finally reduce the cigarette bootlegging epidemic that is crippling small businesses, depriving the State of hundreds of millions of dollars in tax revenue, and thwarting anti-smoking initiatives.
It eliminates a long-standing competitive disadvantage for mom-and-pop retailers versus chain stores.
By reforming the minimum markup percentages under the Cigarette Marketing Standards Act, S.5701a/A.8064a would level the playing field between chain retailers (operating more 15 stores or more) and smaller independents. Under the current formula, both chains and independents must abide by the same state-minimum price, but the independents derive less minimum markup revenue. S.5701a/A.8064a would unify the minimum wholesale price paid by chains and independents to their suppliers.
It provides a long-overdue adjustment in the presumed cost of doing business for all levels of the supply chain.
Ostensibly to maintain stability and fair play in the marketplace, the CMSA imposes minimum markup percentages at each level of the supply chain to establish uniform minimum selling prices for each brand of cigarette sold in New York State. These markups, by definition, are intended to reflect the industry’s “presumed cost of doing business.” Costs have escalated dramatically for cigarette stamping agents and retailers since their markups were last adjusted in 2000 and 1990, respectively. Accordingly, the markup percentages need to be adjusted. S.1891d/A.8854a does so in a balanced and comprehensive manner.
In the interest of curbing the cigarette tax evasion stampede and restoring fairness and balance for licensed wholesalers and retailers, we urge the Senate and Assembly to enact this bill into law.
James S. Calvin
June 8, 2015