ALBANY, N.Y. – The New York Association of Convenience Stores (NYACS) is fighting Governor Cuomo's budget recommendation to change the method of taxing cigars from a percentage of wholesale value to 45 cents per cigar.

“You’re talking about a massive shift of tax burden from bluebloods who consult Cigar Snob magazine for recommendations on luxury cigars onto blue-collar customers who buy two-packs at convenience stores,” said NYACS President Jim Calvin. “It’s not right, and we’re determined not to let it happen.”

NYACS members and staff have been meeting with individual members of the state Senate and Assembly since January to explain the injustice of the tax change. The Assembly leadership supports the switch, while the Senate leadership opposes it. The governor and legislative leaders are now in the final weeks of negotiating this and other budget issues. Calvin is urging all New York retailers to contact their state legislators now urging them to leave the existing cigar tax structure alone.

Calvin provided the following illustration of how the tax change would distort New York’s cigar marketplace.

Currently, a handmade premium cigar crafted in the Dominican Republic might retail for $45 at a fine tobacconist. Its wholesale price was perhaps $22, making the excise tax either $9.90, using the standard rate of 75% of wholesale value; or $6.27, using a state-approved alternative rate of 28.5% if the manufacturer’s invoice is not available to the wholesale distributor (who prepays the excise tax to the state).

Meanwhile, a neighborhood bodega currently sells budget cigars in a package of two for 99 cents. The wholesale price on that package was perhaps 54 cents (27 cents per cigar), making the New York excise tax either 40.5 cents, if the 75% calculation was used, or 15.4 cents, using the 28.5% rate.

Governor Cuomo’s plan would flip that tax dynamic completely upside down. The tax on the premium cigar would drop more than 90%—from $9.90 to 45 cents—while the tax on the bodega two-pack would jump either 140% or 341% to a new level of 90 cents, meaning the excise tax would now exceed the product price.

Calvin said the resulting spike in retail prices would trigger an exodus of price-sensitive mass market cigar customers from tax-collecting New York convenience stores to places where the two-pack would be priced sharply lower because they don’t collect New York state excise tax, including:

• Neighboring Pennsylvania, whose state cigar excise tax is zero.
• Native American outlets across New York, which do not collect any state tax.
• An abundance of tax-free mail-order tobacco websites.

“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,” Calvin said, adding that “luxury cigar aficionados would receive a huge tax break, blue-collar cigar consumers would pay through the nose, and tax-collecting convenience stores would lose sales to tax-free competitors.”