Nashua Telegraph: Tobacco tax hikes in neighboring states could benefit NH
By Kevin Landrigan
By any measure, the first tobacco tax cut in New Hampshire history – which the Republican-led Legislature adopted two years ago to spur increased sales here – was an abject failure.
Just as that cut of 10 cents a pack of cigarettes kicked in, tobacco companies raised prices nationally. It more than wiped out any price break for New Hampshire smokers and tourists who came to buy them here.
So the multimillion-dollar question is: Will a $1-a-pack tobacco tax increase in Massachusetts cause a flood of out-of-state residents into New Hampshire to buy cheaper butts?
And what about that 10-cent tax cut in New Hampshire that went away on Thursday, the same day as the tax hike in Massachusetts: Will it slice even further into our price advantage for Bay Staters, who by far are the largest group of out-of-state smokers who come here to buy cigarettes?
John Dumais is president of the Retail Grocers Association, which helped convince the Republican-led state Senate to block an additional 20-cent increase that Gov. Maggie Hassan and the Democratically controlled House had strongly supported.
“Everyone today is so price-conscious of what they are buying. With this kind of difference, we definitely should be expecting a substantial increase. It’s not just a dime; it’s really a dollar. That’s not $1 a carton; it’s $10,” Dumais said.
“They also increased their gas tax, and the combination of things should help push more people coming across the border.”
Mike Rollo, a former New Hampshire Democratic legislator and a lobbyist with the American Cancer Society Action Network, is not so sure.
“Sure, there usually is a bit of a bump for us and other revenues whenever Mass. raises their tax. It doesn’t last very long in the past, usually equalizes in a month or two,” Rollo said.
“There are some other factors, though, that will make this one really interesting to watch.”
Eli Meheb runs Tobacco Empire in Salem on Route 28 and is bullish that the Massachusetts hike will translate into big gains, especially for convenience and specialty stores like his.
“Massachusetts is competing now with New York with the highest taxes in the country. What we are going to charge for $50-$60 a carton is going to go for $90-$100 down state in Massachusetts before too long,” Meheb said.
“We’ve seen tobacco companies’ prices interfere with our price advantage, but not this time, and that spread over time is going to be irresistible for shoppers down south.”
Let’s start with Big Tobacco and whether the history of 2011 can repeat itself.
That’s unlikely, since the national jump already happened, as national firms raised tobacco prices an average 60 cents a pack earlier this summer.
Industry leaders say cigarette makers typically raise prices twice a year, once in the summer and then toward the end of the year.
“We’re already taken that price hit and passed it on as businesses if we had to, or absorbed some of it to keep on selling,” Meheb explained.
Dumais emphasized that the three-cent-a-gallon gas tax increase that Massachusetts lawmakers also approved can only help further.
“Gas prices are the biggest factor that motivate out-of-state tourist purchases, bar none,” Dumais said. “That’s why we need to keep a close eye on those prices going forward. God forbid something happened in the Middle East: You could get a price spike all over that could minimize any boom in business we could see.”
There’s not much Massachusetts retailers can do to compete, as they have less control over prices than merchants in the Granite State. Massachusetts has a strictly enforced state law requiring minimums and maximum prices for each cigarette brand.
Retail chains get to charge slightly lower prices than non-chains, such as Mom and Pop convenience stores.
The Awl.com is a New York City-based website dedicated to answering questions about pop culture, from politics and fashion to high finance.
On July 12, it sampled every state’s largest city for the price of a pack of Marlboro Red cigarettes.
The price in Concord was $48.60 a carton.
The price in Boston was $84.90 a carton.
The state minimum price for Marlboro Red in Massachusetts with the $1 tax hike?
That’s $95.11 in convenience stores and $93.71 for retail chains.
The only exemptions to the Massachusetts minimum price are cigarettes that get sold to the military and the federal government.
“There’s no price control here,” Meheb said. “I can charge whatever I want for a carton. My competitors in Mass. cannot, and that’s why you could see an even bigger increase in sales as word spreads.”
In The Awl survey, that Concord price drop of 20 percent from a year ago is the biggest drop of any state in the nation.
The Concord price per pack was the second-lowest in the country, higher only than a pack bought in Charleston, W.Va.
The Boston price? In one year, the price went up 2 percent before this $1 tax hike, and it was the eighth-highest in the U.S.
Now, The Massachusetts tax at $3.51 a pack is second in the nation, only lower than New York, where the tax is $4.35.
When New Hampshire’s tax goes back up to $1.78 per pack, it will be the 18th-highest.
Even anti-tobacco groups don’t believe the 10-cent jump of the tax in New Hampshire will have much impact.
A New Hampshire Medical Society study last spring concluded that it would take a 60-cent increase in the tax to significantly reduce youth smoking in New Hampshire.
The Campaign for Tobacco Free Kids says New Hampshire’s youth smoking rate at 18.1 percent equals the national average but is the highest in New England.
“We supported the 30-cent increase the governor proposed because we also understood political reality,” said Nancy Johnson, a former GOP state legislator who now represents the American Lung Association of Northern New England.
“We could eliminate smoking in the state of New Hampshire in a generation if we had the political will to do it by making it much more expensive.”
Greg Moore is state director of Americans for Prosperity, a fiscally conservative group that stiffly fought both attempts to raise the tobacco and gasoline taxes before the New Hampshire Legislature.
“The bottom line is, we’ve got a very good story to sell here,” Moore said. “We tried to make the case that raising either tax, tobacco or gasoline, was going to erode our brand.”
But some economists dispute how much tobacco prices really are a magnet for the sale of food, gas or other products bought by tourists.
In March 2011, Brian Gottlob of PolEcon Research in Dover analyzed 10 years of tobacco tax changes in New Hampshire and border states for a coalition of anti-tobacco groups.
The study found no correlation between tobacco sales and other retail products, and Gottlob predicted that the 2011 tax cut would reduce revenues for the state.
The grocers came out with their own economic study back then, insisting that the tax cut would increase sales.
Ultimately, both were wrong.
The take from the tobacco tax over the past two years was just below what came in during the previous two-year cycle.
The Republican-led Legislature, however, assumed that the tax cut would pay big dividends. Last year alone, revenues came up $13 million short of the forecast.
“The perfect storm hit us,” Dumais said. “We had the tobacco companies raise their prices, gas prices shot up, and the lingering recession meant people stayed closer to home and didn’t make those regular trips up here to buy cheaper in New Hampshire.”
The grocery industry leader said this price war still bears watching, as other neighboring states aren’t following suit with Massachusetts.
“Vermont ($2.62 a pack), Maine ($2) and other states as well haven’t gone up on theirs to the same degree,” Dumais said.
“We’ve also just raised the tax back up on other tobacco products, like snuff and chewing tobacco, and that could hurt us in the long run with Vermont and Maine.”
To help balance the budget, Senate budget writers agreed to raise the tax on other tobacco products except premium cigars to 65 percent of the wholesale price, up from 49 percent.
This is expected to bring $5 million into state coffers over the next two years.
Again in this regard at least, Dumais has little to worry about Massachusetts.
Last week, that Massachusetts tax on other tobacco products more than doubled, to 200 percent of the wholesale price, up from 90 percent.
“We hope it is the gift that keeps on giving,” Dumais quipped.