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Cigarettes Price Increase Offsets N.H. Tax Cut

Some believe promises the state would increase sales by cutting the tobacco tax may turn out to be nothing more than smoke cigarettes and mirrors.

As the Republican majority in the New Hampshire House fought for the tobacco tax decrease during the budget process, one of their core arguments was the tax cut would lead to more auxiliary sales and increased profits.

"We strongly believe that reducing this tax will result in more revenue, more economic growth and more tax cuts," said House Speaker William O'Brien in a June statement about the tax cap.

The recent passing of the state budget brought the tobacco tax down from $1.78 per pack to $1.68 per pack, lowering the price of cigarettes online by 10 cents a pack and $1 a carton. But that didn't last long.

Soon after the tax cut went into effect July 1, tobacco companies raised wholesale cigarette prices, essentially leaving prices as they were before.

At Bursaw's Pantry on Lafayette Road in Portsmouth cigarette prices remain virtually unchanged because of the price increases. Owner John Bursaw said the increases vary. Most wholesalers took back 90 percent of the savings from the tax break. Some took back 80 percent and a few took back 50 percent.

At Cabot Street Market in Portsmouth the price of cigarettes went down for three days when the tax decrease took effect, but the prices are back to where they were because of the recent price increases, according to store clerk Fred Heick.

Heick said sales on cigarettes store appear to be up so far this month because the state's prices are still cheaper than the bordering states, but customers are starting to scratch their heads about the prices.

"Because we did go down in price there have been questions about why we went up again," Heick said.

Heick said it's not unusual for tobacco prices to go up during the year.

According to published reports, the Altria Group raised the price of its Philip Morris USA cigarette brands 9 cents per pack, while Lorillard increased its various brands by 5 to 11 cents per back and the RJ Reynolds Company went up 9 cents per pack on their brands.

Shrinking demand was one of the reasons cited by the companies for the increase.

With the recent spike in cigarette prices on the heels of the tax decrease, some are having a hard time seeing how the state is going to increase sales.

Mike Rollo, director of government relations for the American Cancer Society, said things are exactly the same as they were before and there is no additional money in the pockets of consumers.

Rollo, a former state legislator, warned tobacco prices would increase by about 10 cents per pack when he spoke against the tax cut earlier this year. "If you're a tobacco company, why would you leave a 10-cent profit on the table?" Rollo asked.

Rollo called claims of increasing sales from the tax cut misleading and estimates the cut will cost the state $14 million in revenues over the next two years.

"They basically gave a bailout to the tobacco companies," he said. "They certainly didn't help the consumer or the small-business owner."

State Rep. Laura Pantelakos, D-Portsmouth, said cutting the tobacco tax was the wrong move in a year when so many state agencies lost funding and people lost their jobs. "It takes away a lot of money from things we could've funded," she said.

She also has her doubts about how many people actually cross the borders to purchase cigarettes for sale in New Hampshire.

Pantelakos said the fact the prices went up just as the tax cut went into effect just adds insult to injury. "If there's going to be a savings, I want to see the customers get that savings, and that's not going to happen with the tobacco tax decrease," she said.

She noted a tax cut should benefit the whole population, not just a segment of it.

John Dumais, president of the New Hampshire Grocers Association, thinks New Hampshire still has an advantage. He stressed the increase from the tobacco companies is nationwide and averages 10 cents a pack and $1 a carton.

"Tobacco companies have a tradition of increasing at the wholesale level once in the winter, once in the summer," he said. "They go up nationwide equally, so every state feels it equally."

Therefore, New Hampshire still has a major price advantage that makes it attractive to those coming from Massachusetts or Maine, according to Dumais.

Maine's tobacco tax is $2 per pack, Massachusetts is $2.51 per pack and Vermont went up to $2.62 a pack.

"There's still a great advantage to coming to New Hampshire," Dumais said. "If the tax cut hadn't gone through, prices would've gone up anyways. The perception may be there's no benefit, but there's still substantial benefit for New Hampshire residents and out-of-state visitors."

He said the fact the increase in tobacco prices followed New Hampshire's tax cut is more ironic than anything.

"The tobacco companies have a long history of increasing their prices twice a year," he said. "They didn't think about little New Hampshire when they did it. They're thinking about how to pay insurance, energy and packaging costs."

New Hampshire Senate Finance Chairman Chuck Morse said the Legislature has no control over what tobacco companies do and stands by the decision to cut the tax, claiming it will generate more revenue in the long run because out-of-staters will come to New Hampshire to take advantage of the lower prices.

"The reality is prices went up everywhere," he said. "But with the tax cut, we still have the New Hampshire advantage."

Both Morse and Dumais believe the state's cigarette prices help make the state a popular tourist destination, which in turn helps with taxes collected from people staying in hotels, eating meals and purchasing alcohol and lottery tickets, all of which help drive revenue in the state.

Dumais said it will be a few months before they can start to examine how that hypothesis is holding up.