The sign is hard to miss. It’s taped behind the cash register, which means it’s right in your eyeline as you look in the direction of the clerk at the Speedee Mart in southeast Henderson. But once you see the information on it, you understand. As if to shield the staff from the barrage of complaints that are sure to follow, it reads: “President Obama signed a new tobacco tax into law on Feb. 4th,” and proceeds to list the old and new taxes for all its tobacco products, from packs of cigarettes to large cigars. In almost all cases, the tax hike is 158 percent, except for a little cigar pack—which jumped by 2,425 percent!
Now, some of you may be breathing a sigh of relief that you don’t smoke. But you might drink. And as you read this, your state legislature is considering “sin taxes” on both tobacco and alcohol, both of which would hike prices way past your typical comfort level. (Mine is $10.99 for a 12-pack of Corona, so I’m in for some dark times.)
The increase in the price of cigarettes this year alone has already caused significant market shifts, says Ray Johnson, operations manager for the 21 Las Vegas Speedee Marts. The federal tax increase amounted to 62 cents per pack, but by the time the product hit the shelf, that increase jumped to nearly a dollar, the result of an additional “floor tax,” by which every vendor and manufacturer was taxed based on existing inventory. Every cigarette manufacturer raised their prices in anticipation of the floor tax, which raised the price increase to 79 cents per pack, Johnson says. And every Speedee Mart in Las Vegas was taxed between $3,000 and $5,000 for inventory.
“That cost all gets passed to the customer. Already we’re showing a drop-off in sales of more than 10 percent,” Johnson says. “Some people have tried dropping down in brands to a lower-price cigarette.” Others, he says, appear to be quitting altogether or buying smokeless products, which have all had their prices recently lowered by the manufacturers in an attempt to retain customers.
But a state tax increase, Johnson says, would be particularly devastating to business, as it would most likely cause a loss in business from other states. “We’re at 80 cents state tax, and California is 87 cents, but Arizona is $2,” Johnson says. “Sales are unbelievable if your tax rate is lower.”
Assemblywoman Sheila Leslie, who proposed AB255 to increase the price of a pack of cigarettes by $1 and co-sponsored AB277 to increase taxes on alcohol by 300 percent, says her initial intent was to offset the costs of health care, child abuse and other crimes associated with both products in Nevada. “Anything we can do to discourage use and abuse of these products by teenagers, in particular, is a plus in my opinion—and that is the group that is most price-sensitive.”
Still, Leslie acknowledges the huge hit tobacco has taken this year, adding that it’s “far from certain” the legislature will increase the tobacco tax. “The bill draft was submitted before the feds decided to raise the tobacco tax, so I do feel it’s probably too much of an increase right now at the state level.”
While there’s been no federal tax increase on alcohol, diminished entertainment budgets for Mom and Dad are taking their toll. Lee’s Discount Liquor, which has been in business in Nevada for 28 years, is already seeing a reduction in business, according to owner Hae Un Lee.
“In one year, we went from a $45 average buy per person to $35 per person,” Lee says. He’s fought to keep prices as low as he can, but like Johnson, Lee says a state tax increase would likely kill his out-of-state business.
“We have a lot of customers from all over the country—California, Ohio, Utah, Montana, Washington, everywhere,” Lee says. “If this tax increase is approved, prices would be higher than, say, California, so we lose a lot. People are very sensitive on price. Even one penny can make a huge difference.”
Lee’s business has expanded to 13 stores in Las Vegas and one in Pahrump, but he is “worried” that layoffs or store closures could shortly follow any kind of price increase. “I pay $6 million in state taxes a year. This [300 percent] is too much.”
Leslie emphasizes that Nevada has lost 44 percent of its revenue due to the housing collapse, lost gaming and other factors, adding that sin taxes are “something I believe we need to seriously consider.”
Johnson, however, calls the increased focus on tobacco and cigarettes “absolutely insane” and one of the biggest contributors to Las Vegas’ downfall in the eyes of the planet.
“Our import is money, and our export is memories. People come here to have fun, smoke a cigar, do things maybe they can’t do at home. But every time Nevada comes up with a new law, business in Las Vegas drops,” Johnson says. “One thing I can say for certain—without tobacco, the convenience-store industry is out of business. Period.”