A proposed change in the tax rate on premium cigars in New York didn’t make the final cut of the state’s 2018 budget, which was approved Sunday night and announced by Gov. Andrew Cuomo on Monday morning.
The governor has proposed moving from the state’s current tax rate of 75 percent of the wholesale price–though an industry standard adjustment rate of 28.5 percent reduces that number—to a flat tax of 45 cents per cigar. In the case of a cigar with a manufacturer’s suggested retail price of $9.50, the price at the register would have dropped from approximately $12.21 to $10.40 by halfwheel estimates, and before any sales taxes were added. It was being heralded as a way to remedy compliance and enforcement issues, with the governor saying in his proposed budget that “the current tax structure, which is the result of litigation, has resulted in revenue losses and relies on an industry pricing survey to determine the tax on a product produced by the same industry.”
While the governor supported the change, an agreement about it was not able to be reached with the legislature and so it was removed, according to Morris Peters of the New York State Division of the Budget.
The change in tax rates had been opposed by a number of organizations, including the Cigar Association of America (CAA) and the New York Association of Convenience Stores (NYACS), who called the cut an unfair shift of the tax burden from blue bloods to blue collars, referring to premium cigar smokers and those who buy low-cost two-packs at convenience stores. Under the governor’s proposed change, all cigars, regardless of quantity or price, would have been taxed at the 45-cent rate, something that would have lessened the tax burden for premium cigars while increasing the tax on cheaper, little cigars.
“The Governor’s office claimed that the Department of Taxation was supportive of the change as a way to address increased auditing costs and to generate additional revenue,” said Craig Williamson of CAA. “CAA reached out to experts familiar with the department to verify these auditing claims and found them to be largely overstated. Given the precedent that would be set by levying a flat tax across the entire cigar category which no state currently does, CAA opposed the tax change.”
“This would quickly come to mirror the self-inflicted, cigarette-tax avoidance epidemic that for years has shortchanged New York retailers, taxpayers and anti-smoking efforts,” said Jim Calvin, president of NYACS, in a report by CSPDailyNews.com. He went on to describe it as a tax break for cigar smokers while blue-collar smokers would pay “through the nose” and convenience stores would lose sales to tax-free competitors such as Native American outlets, mail order and online sales, or neighboring states such as Pennsylvania, which has no cigar tax.
Williamson warned that the division over the cigar tax could spell an unraveling of the current tax, something that could negatively impact both premium and little cigars.
“The Governor’s tax proposal raised significant interest in the subject of cigar taxes as a whole among legislators, staff, media and various interest groups in Albany over the last few months. Having cigar industry related interest groups simultaneously opposing and supporting the tax, raised the issue profile even further. As an industry, we will now have to work harder than ever in the coming months and years to protect the current tax methodology, given that the Governor’s office and the Department have signaled that they are willing to walk away from the deal.”
Featured image by Hromoslav (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons