Senate plan expensive for smokers

A.J. Reitz bags cartons of cigarettes for a customer at the Barney s Convenience Mart at Detroit Avenue and Alexis Road. A higher cigarette tax could mean lower sales for Barney s.

COLUMBUS - "We got outlobbied," an angry Bob Richard, owner of the 10-store Barney Convenience Mart chain in northwest Ohio, said of an Ohio Senate plan to substitute higher cigarette taxes for a proposed doubling of beer and wine taxes.

Cigarette sales represent 35 percent of the chain's $65 million in annual business, he said. With his store at Alexis Road and Detroit Avenue near the Michigan line, he expects sales to suffer as Ohio nearly halves its $1.45-per-pack price advantage that has drawn northern smokers over the state border.

Senate Republicans today will unveil their counterproposal to the $51.3 billion, two-year budget passed last month by the House.

It will include an increase of 70 cents in the cigarette tax, up a quarter from what Gov. Bob Taft proposed and the House approved.

Ohio's new tax would be $1.25 per pack, the 12th highest in the nation. Michigan's $2 is the third highest.

"Back in the late 1990s, before Michigan raised its taxes and our taxes were pretty close to even, we sold 1,600 cartons a week," he said. "When Michigan had a large tax increase, we went to 14,000 cartons a week."

Sales dropped when Ohio raised its tax to 55 cents three years ago and then climbed again when Michigan upped its tax to $2 last year.

"We are bleeding to Kentucky," said Mr. Richard, vice chairman of the Ohio Retail Merchants Association. "They just raised their tax, but they stayed below $5.50 [per pack in total price]. They're not stupid. They get the picture. Indiana did not raise its tax, because it wants to become another Kentucky."

Coupled with the impact of the proposed Commercial Activity Tax, a shift from taxing corporate profits to taxing gross sales that could him $170,000 more a year, Mr. Richard said the higher cigarette tax could force him to sell his 10 stores.

They employ about 230 people, most of them employees earning about $8 an hour.

The substitution of one "sin tax" for another was presented as a jobs issue by Senate Republican leadership, responding to predictions from the beer industry that the proposed doubling of its tax could cost Ohio 1,500 of its roughly 35,000 related jobs. The tax on beer would have gone from 18 cents per gallon to 36 cents.

"The jobs at local distributors have an average salary of $50,000 a year, before you get into their benefits," said Andy Herf, lobbyist for the Wholesale Beer and Wine Association of Ohio. "There are 60-plus wholesalers in the state."

The state also has two major breweries - Anheuser-Busch north of Columbus and Miller's north of Cincinnati.

"We only lobbied to take the beer and wine tax out," he said. "We were not lobbying to add a tobacco tax to pay for it, but that was the deal we were given."

Both the cigarette and alcohol taxes were designed to help pay for Mr. Taft's tax reform plan, expected to raise about $1 billion less over the next two years than if no changes were made. The plan calls for personal income taxes to be gradually reduced 21 percent and for a pair of business taxes to be replaced with the controversial new tax on gross sales.

The Senate's higher cigarette tax would raise an estimated $257 million during the biennium over the governor's plan, more than enough to offset the canceled beer and wine hike, cancellation of a proposed new tax on real estate transfers, cancellation a tax hike on other tobacco products like cigars and chewing tobacco, and restored funding for children's hospitals.

The higher tax has been applauded by anti-smoking activists, although they would have preferred that the excess revenue be used to repay tobacco settlement money the state has "borrowed" from smoking prevention programs and to finance expansion of health coverage.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.