Tax increase to boost tobacco black market?

The rising price of tobacco is rippling across Arizona, forcing smokers to dig deeper for cash, sparking a potential black market boost and prompting an increase in calls to a state cessation help line.

The federal tax on a pack of cigarettes April 1 went from 39 cents to $1.01, which raises the price by about 10 percent. Cigar taxes went up 40 cents per stick, about a 10 percent increase for most smokers.

The tax on bulk tobacco – the roll-your-own type many smokers have turned to lately to save money – went from $1.09 per pound to $24. That’s a 2,102 percent increase.

“They’re creating a whole new black market, is what they’re doing,” said Dan Johnson, 54, a 30-year smoker who rolls his own. “There’s going to be a lot more smuggling, that’s for sure.”

A couple of weeks ago, the price of a packet of “rollies” was about $1.25; now it’s approaching $4, said Johnson, a day laborer who can ill afford the added cost.

The state Department of Revenue confirms that rising costs spur the black market.

Revenue Agent Jack Doyle told a state Bureau of Tobacco Education and Prevention Program committee in January that black market products from Mexico, Indian reservations and states with lower or no taxes take money from the state coffers.

Smokers are pooling resources to make trips to such places for bulk purchases to avoid taxes. Not all that is brought back is for personal use; some of it is sold to friends and others.

Wayne Tormala, director of the state bureau, who receives his budget directly from tobacco taxes, agreed.

“Arizonans have a lot of ways they can get outside the tax structure,” Tormala said.

The Department of Revenue needs more than just seven agents assigned to cigarettes (there are 25 assigned to alcohol), Doyle told the committee.

Messages left recently with the state agency seeking comment went unanswered.

Johnson suspects the black market will thrive as prices continue to rise.

“If you can buy a carton of cigarettes in Mexico for $7 and sell it here for more, why not?” he asked.

Help line calls on rise

For the first three months of the year, the University of Arizona-based Arizona Smoker’s Helpline, which handles calls for the entire state, received about 200 a week from smokers who wanted to quit, Director Stephen Michael said.

“Last week, our calls were up . . . almost 100 percent” to about 375, Michael said last week.

Bill Bailey, 30, who was taking a smoking break downtown Friday, was among them. Bailey has newborn twins and he vowed to quit before they are 90 days old.

Bailey’s doctor referred him to the help line. He has called the line a few times, but he thinks he will go it alone soon, he said.

The line is staffed by intake specialists who assess callers and refer them to coaches, who help smokers craft plans to quit, call to check progress and generally serve as a shoulder to lean on, Michael said.

Since July 1, the state has shifted its cessation focus away from classes – they stopped in Pima County in December – to the help line after deciding it was more economical, Tormala said.

It makes sense. Studies have shown that help lines and Internet based-counseling, which ASHline also offers, help more people dollar for dollar, Michael said.

“What we’ve been doing most of this year is focusing on physicians for referrals,” he said.

At the end of fiscal 2008 last June, the help line was getting about 400-500 referrals per month from doctors. Now there are about 800-1,000 per month, Michael said.

Bailey, who has seven children to raise with his girlfriend, Heather Quigley, is OK with the tax increase, especially since the extra funds might pay for health care for the couple’s kids.

The State Children’s Health Insurance Program, under which the federal taxes were made law, is aimed at people in the Tucson couple’s shoes. They make too much to qualify for Medicaid, but struggle to make ends meet, Bailey said.

“Right now, we’re on one income – his – so it is” a factor, she said.

Bailey said that at $12 per day, the cost of smoking could drive the couple to quit sooner than it planned.

“We might be running short on cigarettes next week, and that might be the start of us quitting,” he said.

At Smoke, the cigar bar attached to McMahon’s Prime Steakhouse, 2959 N. Swan Road, the impact of the new 40-cent-per-cigar federal tax hasn’t been felt.

Owner Bob McMahon won’t raise prices until he sells his way through inventory he bought at the pre-tax increase prices, he said.

It might be a while before his customers, who pay from $3 for a Montecristo Memories to $175 for a Fuente Opus X BBMF Maduro, puff their way through his humidor.

“I have thousands, for sure,” McMahon said.

The same is true for Anthony’s Cigar Emporium, 7866 N. Oracle Road, said manager Brian King, although the tax increase has affected sales.

Anthony’s no longer carries bulk tobacco because the higher quality brands the store carried were about to almost double in price, King said.

“The stuff we were selling for $30, we were going to have to sell for $50-70 per can,” he said.

The increases come when the store is already hurting.

“We’re already in a sluggish economy. We’ve already seen business dip because cigars are a luxury item,” King said.

Still, cigar afficionados – who are generally somewhat affluent – will mostly take the price increase in stride, said Ron Janoff, 81, who started smoking cigars about five years ago after 30 years as a nonsmoker.

Janoff smokes about six or seven $4 to $5 cigars a week, one a day plus maybe two on weekends. The 10 percent rise is unlikely to deter him.

“If you can afford to smoke cigars, you really aren’t going to notice it,” said the semi-retired real estate developer.

Similar Posts:

If you enjoyed this post, make sure you subscribe to my RSS feed!