Taxes Send Smokers Over Border Business, State Lose Out As People Buy Elsewhere
The higher Washington’s tobacco tax goes, the more people dodge the hefty tariff.
Customers drive across the border, go to Indian smoke shops or shop at military bases to avoid Washington’s tobacco tax, the highest in the nation.
Meanwhile, neighborhood stores take it on the chin. Increases in Washington’s sin taxes on cigarettes, wine and beer since 1992 hurt sales, store owners say.
“We’ve watched our sales of cigarettes fall from $600 a day to $300,” said Darla Kitchens, manager of the Maid O’Clover convenience store on North Division.
“We offer customers a special on two or three packs and they say ‘Oh that’s OK, I’m going to Idaho tomorrow.”’
A carton of Marlboro cigarettes goes for $24.29 at a 7-Eleven on Pines Road in the Spokane Valley. Smokers can get the same thing for $17.20 about 15 minutes down the road at the 7-Eleven in Post Falls.
Ron Armacost, owner of the Zip-Trip chain of stores, says sales of cigarettes, wine and beer are down 12 to 20 percent in his 15 Spokane-area stores, and up an equal amount at his two Idaho stores near the Washington border. “It does not take a genius to figure this out.”
The lost business in Washington state hurts: about 45 percent of Zip Trip’s sales are in cigarettes, beer and wine, Armacost said.
“You can’t blame people for crossing the border,” said Rep. John Pennington, R-Carrolls, who says he’ll introduce legislation this session to roll back sin taxes.
They were raised to implement the 1993 Health Care Reform Act, which has been largely repealed - except the taxes.
“It’s a little unfair to keep collecting this money just because it’s there, when the stated purpose for the tax is no longer there,” said Sen. James West, R-Spokane.
Store owners, beer distributors, and the tobacco lobby are pushing hard for tax breaks.
But they’ll run smack into a Legislature that’s particularly afraid of looking like tools of Big Tobacco in an election year.
“You look like you are doing favors for those evil tobacco guys,” West said.
Raising the tobacco tax so high has had unintended consequences.
As the tobacco tax has gone up, the amount of money lost to tax evasion has doubled, jumping from $44.2 million this year to an estimated $81.8 million during 1996.
Since Washington’s tax went up 17.5 cents last July, one in every four cigarettes smoked here is contraband, according to the state tax office.
Washington prohibits transporting cigarettes across state lines, but seldom enforces the law.
Revenue losses due to tax evasion are expected to jump from $57 million to $87 million a year, according to the state Department of Revenue.
People dodge Washington’s tax by buying cigarettes across the border, at military PX’s and Indian smoke shops, where state taxes are lower or non-existent.
“We are making criminals of people,” said Rep. Brian Thomas, R-Renton, chairman of the House Revenue Committee.
Thomas wouldn’t predict if law makers will yield to the pressure to cut sin taxes.
“It would be a huge, controversial issue. Not a logical discussion. I don’t know if anyone would be foolish enough to get into it in an election year.”
Lawmakers also will be looking for cash to make up budget cuts expected from the federal government.
Sin taxes have been the bank of choice anytime lawmakers are scratching for cash.
Tobacco taxes have gone up more than 350 percent in the past 10 years.
The taxes pay for everything from Puget Sound clean-up to sewer construction, anti-violence programs, subsidized health insurance and the greatest tax maw of all, the state General Fund.
The tobacco tax is scheduled to go up yet again in July, by one penny per pack.
Some lawmakers, including Sen. Nita Rinehart, D-Seattle, chairman of the Senate Ways and Means Committee, say the taxes are needed to pay for the Basic Health Plan, which provides subsidized health insurance for the poor.
Rinehart, who is running for governor, and other lawmakers also fear any drop in the tax will increase smoking and lure new smokers, who tend to be kids.
“If you have a business that is dependent on cigarettes, I have to regretfully say, you’ll have to sell something else,” said Sen. John Moyer, R-Spokane, a retired physician. “There are just too many diseases associated with it. And the same goes for alcohol.”
Beer wholesalers, slated to eat fat tax increases over the next several years, hope for relief, too.
“Tax increases hurt our business,” said Bob Koprivica of Joey August Distributors in Spokane.
Washington’s tax on beer is nearly triple the rate in Oregon, and about double the tax in Idaho.
And it’s going higher: Washington’s beer tax of 12.6 cents per six pack is scheduled to go up to 16.08 cents in July.
“We can’t always pass the increase on to our customers, and that means we have to absorb it, which hurts our profit margins,” Koprivica said.
The beer tax unfairly singles out Joe Sixpack to pay for programs intended to benefit everyone, Kopravica said.
The beer tax has been raised 344 percent in eight years, records show.
Beer wholesalers and distributors may have better luck with lawmakers.
They don’t suffer from the same evil empire image as the tobacco lobby. And beer wholesalers often are small business people in lawmakers’ home districts.
But convenience store owners say lawmakers who think they are sticking it to the tobacco industry are actually hurting neighborhood stores.
“It makes me angry,” said Jeff Loudon, chief executive officer of the Maid O’Clover convenience store chain, with six stores in Spokane.
“Government has nickeled and dimed us for years. But now it’s getting to be more like quartered and dollared.”
, DataTimes ILLUSTRATION: Graphic: What a drag