Why Taxes Hurt Retailers and Wholesalers
- Retail and wholesale employees’ safety could be in jeopardy
A truckload of cigarettes could be worth up to $2 million. And a tobacco tax increase means cigarettes will become even more valuable, making cigarette theft and burglary more common at every stage of distribution. From convenience store robberies to warehouse break-ins to truck hijackings, cigarette crime is expected to increase – putting the men and women who work with cigarettes in danger on the job. - Retail/Wholesale jobs and paychecks threatened
State excise tax increases on cigarettes can bring about disastrous financial results for retailers, wholesalers and their employees. For instance, a year following a hike of $1 per pack in Iowa cigarette taxes, there was a 36% drop in that state's tobacco sales. In convenience stores, which depend on tobacco for one-third of all sales volume, employment is definitely threatened.
When a state legislature raises cigarette taxes, sales declines generally lead to job cutbacks at many local convenience stores and for wholesaler sales and delivery jobs. -
Higher cigarette taxes increase gang and other organized crime
An increase in tobacco taxes will escalate an already-thriving underground market, making it more lucrative for gangs and other organized crime outfits to steal, smuggle and funnel black market cigarettes to consumers. In fact, the higher the tax increase, the more lucrative are the illicit profits made by criminals and the less legal profit is made by retailers and wholesalers. Illegal sales also cut into revenue projections by state government.
An increase in illegal tobacco sales also take up the time and resources of law enforcement officers and results in further demands from the public that the state spend more on protection issues. -
Smokers may go out of their way to purchase less expensive cigarettes
Studies show that revenues from increased state cigarette taxes often fall short of projections, partially because smokers will go out of their way to purchase less expensive cigarettes via untaxed channels: international web sites, Native-American reservations, and even the black market. In addition, revenue and sales for in-state merchants are lost when smokers travel across borders into states with cheaper cigarette taxes. And local store owners don't lose just their tobacco sales. When customers travel to other stores, they will also make food, gas and beverage purchases at the same place they buy cigarettes. Retailer associations estimate the loss from these extra sales alone is about 20%.
This tax avoidance often leads to state revenue projection losses for both cigarette excise taxes and sales taxes—making tobacco tax increases and inefficient means of creating revenue.
