N.Y. C-Stores Prepare to Take a Hike

New York State convenience store retailers are bracing themselves to face the highest tobacco tax in the country. Republican Gov. George Pataki is set to sign the bipartisan bill that raises tobacco taxes from 56 cents to $1.11 effective March 1.

While the revenue will finance a noble cause ? the Health Care Reform Act 2000 that funds medical care for as many as 1 million uninsured New Yorkers ? c-store operators say they're the ones who'll be hurting.

Those interviewed fear consumers will hop to border states to save as much as $11.65 per carton in state taxes ? or more than $1.16 per pack ? and avoid forking over $4-plus for a pack of premium-brand smokes. Weary shoppers not wanting to cross state lines will have an even greater incentive to patronize tax-free Indian reservations, further exacerbating an already tense situation.

"There's a disbelief and an outrage that it could happen, that it has happened, and that it happened so swiftly without warning and without debate," said Jim Calvin, president of the New York Association of Convenience Stores (NYACS), which lobbied against the measure. "What do we do now? Can we cope? Can we survive if the tax does indeed take effect?"

Calvin said the industry's argument transcends price. It's about fairness. "All of the business will go to businesses that are charging less or no taxes. Since the c-store tobacco revenue will drop dramatically, then where does the state go to get the money?

"When New York's businesses are hurt, and the state treasury loses money, they have to make up the money other ways down the road. They will have to get it from taxpayers in some form," he said.

The increase comes on top of another wholesale hike by the tobacco industry. Last month, tobacco companies, led by Philip Morris, boosted single-pack prices by 13 cents. This means New York smokers soon could be paying at least 80 cents more per pack ? taking into account wholesaler and retailer margins.

"We are seeing [only] 16-percent margins on premium brands and we are shooting for 22-percent margins on generic brands," said Bob Newman, president and COO of NOCO Express Shops, a 50-unit chain in Buffalo. "As prices go up, manufacturers will struggle to keep their premium brand business, even more so than they do now."