Lobbyists blow smoke in face of cigarette tax increase

Why? Retailers and business lobbyists say that more people — tired of the state’s third-highest-in-the-nation tobacco tax — began going to border states or turning to Internet retailers in search of less-expensive cigarettes.

Now, three years later, the state is proposing raising the tax again — this time by 12.5 cents, to a shade over $2.70 starting July 1 — and advocates are feeling a sense of déjà vu.

“This will lose the state more revenue and it will hurt retailers the most,” said Arthur J. Maurice, first vice president of the New Jersey Business & Industry Association.

Indeed, retailers say they will lose business — not just on cigarettes, but on sales of other items people buy when they come in for cigarettes, like milk, candy and coffee.

“The customer count will go down,” said Prashant Desai, owner of a Krauszers store in Woodbridge. He estimated half his cigarette customers also buy other merchandise.

He said when the state increased the cigarette tax in July 2006, his customer count went down 15 percent. “They told us, ‘Why should I pay $75 a carton when I can go to Pennsylvania and pick it up for $45?’”

There are nearly 6,000 convenience stores in New Jersey, according to Desai, who also is vice president of the Asian-American Retailers Association. He said cigarettes account for $250 to $300 — or 35 percent to 40 percent of such a store’s revenue — per day, according to a widely used industry average. The profit margin on cigarettes is about 7 percent, he said.

At least 22 states have legislation pending to increase tobacco taxes, with dual motivations to raise state revenue and discourage use of tobacco, according to the National Conference of State Legislatures.

The federal government earlier this month raised its cigarette tax from 39 cents a pack to $1.01, already creating sticker shock for cigarette smokers, Desai said.

The Campaign for Tobacco-Free Kids embraces tax increases, saying that studies show that for every 10 percent increase on the cost of cigarettes, usage is cut by 4 percent.

But business lobbyists say that the cost of tobacco is now so high that those who are still smoking are less likely to quit.

The move by Garden State consumers to cross the border to buy cigarettes is not a myth, said Dale Florio, a lobbyist at Princeton Public Affairs Group, which represents a cigarette manufacturer, tobacco distributors and Quick Chek stores. Two years ago, Florio asked an intern to stake out a tobacco store in Morrisville, Pa., located just across the Calhoun Street Bridge from Trenton. “At lunch time, they were rolling across the bridge,” Florio said. “Seventy percent of the people that went in there had New Jersey license plates.”

It is technically illegal for New Jersey residents to bring cigarettes across the state without paying the state’s sales tax, said Tom Bell a spokesman for the state Treasury.

Gov. Jon S. Corzine’s proposed $29.8 billion state budget, for the fiscal year that begins July 1, includes the 12.5-cent cigarette tax hike. The budget estimates the increase will raise an additional $24 million.

Asked why the state thinks revenue will increase this time, Bell said, “Behavioral changes are always factored into any revenue estimates from the cigarette tax.” The state believes that it may lose some business as people head out-of-state or online for cigarettes — or quit smoking — but “a certain group ultimately returns to previous behaviors: resumption of smoking; returning to the convenience of buying cigarettes locally.”

But “history indicates a more probable outcome is revenues will instead fall by at least $10 million,” Maurice said.