Cigarette tax hike would hurt small shops and invite tax evasion

State lawmakers are once again targeting adult smokers to raise money to help plug holes in the state’s projected $38 billion to $39 billion spending plan. They’re proposing a 50-cent per pack increase in the state’s cigarette excise tax to about $3.53 per pack. With this increase, the total government burden on a pack of cigarettes would be $5.92, or more than 65 percent of the total estimated per pack price of $9.07.

Total tax-paid cigarette sales in Washington have declined an average of 6.2 percent a year for the past 10 years. This trend shows that our state government will collect less and less revenue from cigarette excise taxes over time, and this will clearly result in significant funding gaps for programs that are dependent on these programs. An increase in these taxes likely will accelerate this trend.

The benefit to the state treasury is doubtful, but the damage such tax increases will inflict on our state’s businesses is a certainty. Cigarette sales are an important source of revenue for the 5,710 retailers in Washington that sell cigarettes. According to the National Association of Convenience stores, cigarettes account for nearly 32 percent of all in-store sales for these businesses, which are mainly comprised of small operators.

Increasing cigarette excise taxes would harm these small businesses by reducing sales of their top product category. As cigarettes become more expensive, adult smokers are likely to react by shifting their purchases across state lines, to contraband sales, to the internet, or to Indian reservations. For example, adult smokers could save $39.17 per carton of cigarettes by purchasing them in Idaho, and almost as much by buying them in Oregon. The savings would be even more substantial if cigarettes are purchased from sources where no taxes are collected.

As a result, state government will not only collect less revenue than expected from a cigarette tax increase, but combined with the fact that tax-paid cigarette sales are on an overall decline, these impacts will further destabilize the state’s revenue stream.

Most importantly, such a shift would cause retailers in Washington to lose substantial revenues. These losses would become even more pronounced, given that cigarettes are often purchased with other items such as gasoline, food and beverages. For many shop owners, these losses would result in the failure of their businesses, the jobs they provide, and the local economies they support.

In our fragile economy, small businesses in Washington, especially the 5,700 retailers who sell cigarettes to adult consumers, cannot and should not have to withstand this threat to their survival. It’s time to urge our legislators to stop this unfair tax increase. It’s bad for small business. It’s bad for families who rely on those businesses. And it’s bad for Washington.