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Cigarette tax set to take a big leap
Increase kicks in Jan. 1; consumers, suppliers have decisions to make12:53 PM CST on Monday, December 25, 2006
AUSTIN – Every time he stands outside a nonsmoking bar shivering in the cold winter air, Camel Light cigarette dangling from his lips, Chris Maddock feels punished.
And he likes it.
That's why the 34-year-old Austin man is looking forward to Jan. 1, when cigarettes go up at least $1 per pack and about $12 per carton after Texas officially increases the tax on cigarettes to help pay for a property-tax cut.
Maybe, finally, it'll make him quit.
"I invite the tax. I'm all for anything that makes it harder for me, both individually and in society, to smoke," he said. "I love things like that. I love smoking bans, I love feeling marginalized and having to pay more for what really is a habit that's bad for my health."
Anticipation is already rising among smokers and nonsmokers and their respective big-money advocates, more than a week before the tax hits convenience stores and smoke shops across Texas.
Convenience stores are bracing for a drop in sales. Discount shops are running out of some brands. Distributors are liquidating their inventories. And federal agents are keeping an eye on the situation after tax increases in other states led to robberies and smuggling rings.
And many smokers are vowing to either kick the habit or look outside state lines for their cigarettes – given that a pack-a-day habit will cost an additional $30 a month after New Year's Day.
Don Novak of Dallas, annoyed at both the cost and the premise of the new tax, plans to make regular cigarette runs to Oklahoma to stock up.
"It might cost me $10 in gas, but I'll just have the satisfaction that I'm buying for a cheaper price up there," said Mr. Novak, 55.
In El Paso, smoker Bonnie Carreno could easily trek across the Mexican border into Juarez for some cheap smokes – if she can get them back into Texas without declaring them and paying the tax at the border, the scenario tax opponents are afraid will happen.
Along with the regular border customs enforcement, the Bureau of Alcohol, Tobacco and Firearms plans to coordinate with other agencies at all levels to be extra vigilant about cigarette smuggling, officials there said.
Still, it won't be difficult to bring in a few packs at a time under the radar for personal use. But after 20 years of smoking, Ms. Carreno, a 36-year-old nuclear medicine tech, isn't even going to bother.
"It's a good excuse to go ahead and quit," she said. "I've been wanting to for a while, anyway. Everybody knows it's not good for you to begin with."
That's music to Dawn Wiatrek's ears. The spokeswoman for the American Cancer Society in Austin is hoping that more of the state's smokers – about 20 percent of adults – stub out their habit.
"We certainly expect to see an impact," she said, adding that it's still too early to say whether people are quitting already. "Along with the New Year's resolutions that tend to kick in, this is a sort of added incentive. We do expect to see additional people quitting for good."
Retired lawyer Susan Portman says most of her buddies are going to quit. But Ms. Portman, 53, of Coppell, stocked up on her favorite Skydancer brand recently at Smokey's Discount Cigarettes. She was surprised to see the stock dwindling already and grabbed the four cartons left before the price jumps from $17 to nearly $30.
"The people that wait to stock up are going to get screwed," Ms. Portman said. "There's not going to be a cigarette to be had anywhere in this city, and right before New Year's."
Some distributors, in an effort to clear the decks before they have to pay the tax on whatever inventory they have on Jan. 1, have told retailers that they're going to halt new supplies until after the New Year.
"It's shocking, and everybody I know who smokes is intending to quit," Ms. Portman said. "So I can't imagine this is going to raise any money for the state, and it's going to be a hassle for those of us who say, 'This is my only vice, leave me alone.' ... I don't know what we're going to do. Cut back, that's for sure. I smoke a lot, and I can't do that when it's this much more."
At Smokey's, customers have started to figure out that they should grab their packs while they can still afford them, the owner said.
"This week it's really kicked in," said Kim Nikolis, who has owned Smokey's for 13 years. "We doubled our business today. It's just now that people are starting to figure out that, oh my god, it's coming. ... Wholesalers are running out of some brands. I've talked to them, and there have been people buying steadily for the past two months. I guess they just want to save a little money. I don't think they're going to stop smoking."
Texas lawmakers passed the tax hike in May after one of the most contentious legislative battles of the past two years – the fight over how to fund public schools and fix an unconstitutional property tax system.
The Legislature cut school property taxes and replaced that revenue with a new state business tax and the higher cigarette tax. Sales tax from cars was also tweaked to provide additional revenue.
The cigarette tax hike is expected to bring in $680 million over the next year. But it didn't come without a huge fight from Big Tobacco and convenience stores, wholesalers who worry about smuggling from Mexico and other states, and smokers groups who said they were being unfairly taxed.
Texas had one of the lowest cigarette tax rates in the nation. Now it joins New York with one of the top 10 highest taxes in the nation.
When a smaller tax hike hit New York a few years ago, police reported break-ins at convenience stores citywide and a soaring black market that prompted the ATF to form a task force to combat it The city's proximity to Canada and the fact that neighboring states carried cigarettes well below the New York prices compounded the problem.
The agency could form a similar task force in Texas if it needs to, said Special Agent Tom Crowley, the ATF's spokesman in Dallas.
It will also be watching for people taking advantage of smoke shops at the state's three Indian reservations that, by virtue of their federal status, can sell tax-free cigarettes, he said. While it's not illegal to buy cigarettes there, it's illegal to resell them without paying the tax.
The governor of the Tigua Indians, who live on the Ysleta del Sur Pueblo in El Paso, said he expects a brief spike in sales right after the tax goes into effect. But he's uncertain about what will happen to their single smoke shop in the long term.
Scott Fisher, an executive of a trade association for convenience stores, said he'll probably quit smoking his premium Merits – calling the decision a "no-brainer."
As for smuggling, he advised his members to watch out for people evading the taxes – although he said some areas, like sSouth Texas, may be uniquely insulated from that due to the increasing drug violence in Nuevo Laredo along the border to Matamoros.
"I don't know how much of a factor that's going to be for them because of, frankly, the danger to Americans," Mr. Fisher said. "I'm a smoker, and for a dollar a pack, I wouldn't step foot over there."
E-mail kmbrooks@dallasnews.com
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