Pam Dudding Contributing writer
Many taxes have increased the last couple of years with the current administration, however, Craig County Board of Supervisors also passed a large tax on cigarettes which will impact not only cigarette sales, but also additional sales for our local businesses in Craig.
However, at the November Board of Supervisors meeting, business owner Mike Carper presented important information of the reason to rescind the cigarette tax increase for Craig County business owners that is scheduled to take effect January 1, 2022.
Currently, there is no county tax in Craig on cigarettes.
Additionally, there are still other local cities and towns with “NO” cigarette tax. They are Boones Mill, Buchanan, Dublin, Fincastle, Floyd, Narrows, Pearisburg, Pembroke, Stony Creek and Troutville. These are all surrounding counties that many Craig citizens pass through and would switch their cigarette purchases as well as their gas and “convenience” purchases.
Carper explained that as of January 1, Roanoke County has proposed a $2.50 tax on a carton of cigarettes.
The Craig Board of Supervisors recently and unanimously passed a $4.00 per carton tax.
“This tax is going to put Craig County at a huge disadvantage. This means that businesses will have to raise their price $4.00 per carton or forty cents per pack,” Carper explained. “With that said, I am not a smoker, but this is going to drive business out of our county.”
He added that about 80 percent of working people work outside of Craig County, meaning that they will then “most certainly purchase their cigarettes in Roanoke or other counties.”
Carper also shared with the Board that when people purchase their cigarettes, they also purchase other items too, such as gasoline, drinks, groceries and snacks. Therefore, they will just pick those up in other counties to save money instead of stopping at the convenience of Craig.
Carper noted that cigarette sales make up about 25 percent of their sales. “It we lose only half of that, it affects the people I employ and trickles down and effects the entire business,” he said. “And if I am not mistaken, there is also a 5.3 percent tax on cigarettes and the county gets a portion of that, therefore when they buy in another county, we will also lose out on the 5.3 percent tax as well (Craig receives one percent).”
“People are taxed enough, and prices are already high, and they cannot take anymore. This has the potential of serious impact on our community,” Carper added. “I’ve been in business in Craig for 30 years, so I know our customers. The feedback I am getting is that they will get their cigarettes and gas in another county as well as stock up if needed.”
He added that if the BOS impose the tax, customers can just go across the county line and get cheaper cigarettes.
Carper brought surveys from other counties close to Craig who put a tax on cigarettes.
One survey was from Vinton in 2014. They had proposed a tax from .20 per pack to .40 per pack, looking for an estimated tax revenue increase of 43 percent. However, when statistics came in, the report stated, “The additional revenue never materialized, and cigarette tax revenues plunged by 17 percent instead.”
The study also noted that in 2007, New Jersey raised their cigarette tax a small amount, from $2.40 per pack to $2.58 and according to experts, “Not only did actual revenues miss projections, they also declined below FY 2006 and FY 2005 levels.”
Similar tax increases gave the same negative results in Ashland, Alexandria, Hampton, Winchester, Fairfax City, Leesburg, Newport News, Manassas, Purcellville, Charlottesville, Portsmouth, Bristol and Stanton.
Thus, proving the statements made by Carper to the Board.
The study also provided these important facts:
- According to the U.S. Census, Virginia’s local governments collected 16.3 percent less in real tobacco tax revenue from FY 2010 and FY 2013, even though individual local governments raised cigarette tax rates roughly fifteen times over the same period
- The revenue losses and revenue shortfalls show that the tax increases are changing consumption patterns as consumers seek alternative markets with lower taxes and therefore lower prices
- Tobacco consumers are important to the health of small businesses, such as convenience and small grocery stores, and increasing tobacco taxes can harm these businesses
It continued, “Moreover, tax changes, especially on consumer goods such as gasoline and cigarettes, drive consumers to make purchases in other jurisdictions that have lower or no tax, and, thus, lower prices. In other words, as a result of higher taxes, consumers would have less money to purchase goods and services and thus would see retail sales, and, in turn, tax collections fall or grow more slowly.”
Thus, if the main driver of slumping cigarette sales is that consumers crossing municipal lines to make purchases, then retail sales in convenience stores and small grocery stores suffer under cigarette sales tax increases.
According to data from the National Association of Convenience Stores, “cigarette sales comprise 41 percent, or $48,417, of an average convenience store’s monthly merchandise sales of $118,223 and comprise 21 percent of an average stores gross profit. Cigarette sales are certainly important to the convenience store. However, stores not only lose the sale of cigarettes, but also the other purchases consumers make with their cigarettes.”
Management Science Associates used data from over 3,400 shopping visits to convenience stores to estimate the spending patterns of customers and found that, “Tobacco was the fourth most often purchased item out of 15, as buyers purchased tobacco on 21 percent of their visits. Tobacco consumers made purchases over ten dollars 52 percent of the time compared to 33 percent of the time for non-tobacco consumers.”
The survey finalized that the cigarette consumer is an important source of sales to convenience stores and small grocery stores. The tobacco sales account for a large portion of total sales at these stores and tobacco consumers tend to visit the stores more often and make larger purchases.
Adding, “If cigarette tax increases are driving sales to other jurisdictions, as is the case with Vinton, this portion of the local economy will suffer disproportionately.”
The survey conclusion was, “Several cities and towns across the Commonwealth of Virginia are in the rush to raise revenue by increasing the local excise tax on tobacco. But such tax discrimination has costs. Any short-term revenue gain comes at the expense of long-term decline in sales and diminished economic activity. These regressive taxes fall hardest on low-income consumers but also diminish the prospects of small businesses who also rely on other smokers who have a propensity to spend on other items.”
It was also noted in the survey that excise taxes are problematic since they are not a major source of revenue for local municipalities. Thus, a large increase in the local cigarette tax would not provide a sustainable long-term solution to any immediate funding shortfall facing cities and towns in the Commonwealth of Virginia.
Carper shared, “I’ve seen it in business before, once a customer goes somewhere else, it is hard to get them back. Once people change their habits, they don’t go back. Placing this tax will put Craig businesses at a disadvantage.”
Board members asked questions. Carper shared that out of both his stores, they sell approximately 300 cartons per week.
Jesse Spence shared, “We set out rate to be competitive with other counties. I can’t tell you it will be adjusted but it can be adjusted.”
Carper responded, “I think you ought to take a hard look at it. We don’t want to run our customers off nor our businesses off, because if they don’t buy cigarettes, they aren’t buying their gas, groceries, beer, etc.”
Spence answered, “We do want our customers to shop in Craig and buy everything possible.”
County Administrator Dan Collins added that he will check into the tax by calling the surrounding counties, “If we are out of whack then we need to adjust it. I will bring back a report at the next meeting.”
The Board agreed that they would revisit the proposal.
It is suggested that the citizens of Craig County let the Board of Supervisors know your opinions on this upcoming proposed cigarette tax.