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Cigarette prices rise, new tax still to come

By Geoff Hamill

April 15 is typically feared by many as tax day, but for Kentuckians who smoke cigarettes and use tobacco products, April 1 might be an even scarier day. That’s when House Bill 144 goes into effect, and a new cigarette tax of 30 cents per pack will hit smokers and retailers across the Bluegrass. In addition, a federal excise tax of 62 cents per pack will go into effect for manufacturers and be passed on to customers, making a carton of cigarettes almost $10 higher than before.

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If that looming tax wasn’t enough, some smokers got an unexpected surprise on Thursday when cigarettes manufactured by Phillip Morris went up an additional $7 per carton, even before the new tax goes into effect.

“It shocked everybody yesterday,” said Ann Lewis, manager of The Tobacco Shed in Springfield.

Lewis, like her customers, got the word at the last minute about the increase.

“We just found out yesterday,” she said Thursday morning. “My district manager called and told me they were going up, and she had no idea until then, either.”

Lewis said Phillip Morris manufactures brands such as Marlboro, Basic, Virginia Slims and Benson & Hedges. The recent increase made some of the more popular brands like Marlboro go up to $35.47 per carton, while Benson & Hedges went to $51.39 per carton at The Tobacco Shed. With the new state tax coming April 1, all cigarettes will increase by an additional 30 cents per pack. In addition to the state tax, a federal excise tax of 62 cents per pack will go into effect for cigarette manufacturers, which will likely be passed on to wholesalers, retailers and customers, according to a clerk with the Department of Alcohol and Tobacco Tax and Trade Bureau in Cincinnati.

Customers at The Tobacco Shed were not pleased with the increase. Stan Tennill is manager of Save-A-Lot grocery store in Springfield, and he also oversees The Tobacco Shed. Tennill said he was busy Wednesday after the increase dealing with upset customers.

“I don’t spend a whole lot of time over here, but I did have to come over last night because of people complaining about it. They were giving my cashier over here a hard time,” Tennill said Thursday morning. “I came over here to help ease it out. She was getting frustrated, and I can understand why, but there’s nothing we can do about it.”

Lewis added that the increase came around 3:30 p.m. Wednesday, and she said she expects other companies to follow the action before the new tax goes into effect April 1.

Keith Schlosser has also seen some customers who were not happy with the increase at his Par Mart BP on Main Street in Springfield.

“I had a guy in the store Saturday and he said, ‘I’m through.’ But my experience in the past is that people said that when cigarettes went from $1 to $2 and from $2 to $3 per pack,” Schlosser said. “I think people will change for a week or two, but they’ll go right back to smoking.”

Another customer told Schlosser on Monday that he wanted a cheaper pack of cigarettes than his usual Newports, which now sell for $5.29 per pack.

“People may cut back and go to cheaper brands, but I don’t think they’ll quit smoking,” Schlosser said.

Lewis agreed with Schlosser, and said she is already seeing customers choose some cheaper brands, but she doesn’t expect the higher prices to make people stop smoking.

“I think they will change brands, but they won’t smoke any less,” Lewis said, pointing to her cheapest cigarettes, which are the King Mountain brand, which go for $1.79 per pack.

Schlosser and Lewis both said they don’t expect many of their customers to stock up before the tax increase, although Tennill said he has seen a few people try to beat the rush.

“We have one guy who came through and bought 10 cartons, and he left, turned around and came right back later and bought 10 more,” Tennill said.

If customers do choose to stock up, Lewis said cigarettes will keep for about a year, so a large stockpile could last for a while, if the customers choose to make the investment.

One effect Schlosser said he does expect from the new tax is an impact on counties near state lines. Many of those counties draw customers from neighboring states where cigarette taxes have previously been much higher than Kentucky’s tax, but Schlosser said that will likely change and affect the sale of cigarettes for those counties.

The new tax is not only going to be a concern for customers, but also for retailers. According to modifications listed for House Bill 144 on the Kentucky Department of Revenue’s Web site, there is a one-time stock tax on tobacco products the retailers have on hand when the tax is enacted. This legislative change establishes an inventory floor stock tax to properly address all affected products held for sale at the time of the rate increases. All cigarette licensees and retailers will be required to take a physical inventory as of March 31, 2009 at 11:59 p.m. and file and pay the inventory floor stock tax.

Despite that cost, Schlosser said he will not change his practices when it comes to supplying his store.

“You have to carry the brands your customers want,” he said.

Some customers at The Tobacco Shed Monday said they don’t like the increase, and they had different ways to deal with it. Harold Coleman is just one of the customers who is not happy about the increased prices he pays for snuff and cigarettes.

“It’s crazy, that’s what it is. I used to pay 95 cents for this stuff (Husky snuff), and now these things are going up, too,” he said of a pack of cigarettes he had just purchased. “I’m going to try to quit. I’m spending about $100 a week on tobacco right now, and I think if I try to quit, I can do it.”

While some may choose to quit, others say they should, but will not.

“I smoke two cartons a week, plus three or four packs of this stuff,” said Stacy Reynolds, a regular customer at The Tobacco Shed as he pointed to some roll-your-own tobacco he had purchased at the store. “I’m going to keep smoking. I probably should quit, but I’ll keep smoking.”