Cigarettes rebound after big tax increases

When April 1 hit this year, smokers probably wished what they were seeing in stores was just an April Fools Day prank. But the higher prices for cigarettes were no joke.

April 1 was the day when the state sales tax increased to 30 cents on a pack and to $3 on a carton. On that same day, the federal sales tax went up to 62 cents on a pack and $6.20 on a carton. Combined, the taxes increased to 92 cents per pack and $9.20 per carton.

Managers and owners of local convenience stores and groceries say the response of smokers was predictable — both before and after April 1.

Nancy Baker, longtime manager of the Save-A-Lot Tobacco Shed in Danville, compares what happened just before the big increases took effect to what occurs when a snowstorm is forecast.

“When people hear that a big snow is supposed to be coming, they run in next door (to the Save-A-Lot grocery) to buy up milk, eggs, bread and other staples,” Baker said.

“In the weeks prior to when the higher cigarette sales tax hit on April 1, sales of cartons were booming as smokers wanted to buy as many cigarettes as they could at the pre-tax hike prices,” she said.

But on April 1 and for a few weeks after, cigarette sales dropped off.

“Sales slowed down for a while, and I fully expected that to happen,” she said.

However, in the last two months or so, sales have rebounded, said Baker.

“Sales have returned to the levels we had before the sales tax increases went into effect, at least in terms of volume, or the numbers of packs and cartons we have been selling.”

While she wouldn’t compare the actual monetary figures for before and after the tax increases, Baker indicated that those figures might be a little lower now because a lot of customers at the shed are buying cheaper brands.

“Many people are switching to the generic brands, which are considerably cheaper than the regular brands,” she said.

Other local stores that sell cigarettes have experienced the same sales patterns.

“We sold a lot of cartons right before April 1, but for the first three weeks after that, sales got slower,” said Steve Prewitt, owner of Battlefield Food Mart in Perryville.

Since then, however, cigarette purchases have picked up.

“Sales are back to where they were before the big sales tax increases went into effect,” he said. “I can’t tell any difference between now and a year ago as far as cigarette sales are concerned.”

Prewitt said he can tell a difference, though, in the brands that customers are buying.

“Some customers have gone from the regular major brands to the cheaper brands,” he said. “But the big tobacco companies, like Philip Morris, recognize that and are offering special discounts. Prices for Marlboro, for instance, are lower.”

Christina Hill, an employee at Chills Quick Stop on Lexington Road in Danville, said the lower prices for Marlboro and some other major brands have helped increase sales at her store in recent weeks.

“Lately, we’ve been selling cigarettes like crazy, and a big part of that has been because of the deals Marlboro and other major brands started offering in late July.”

David Finley, owner of Parksville Country Store, said the sale of generic brands has been the major reason that overall cigarette sales have returned to pre-April 1 levels.

“We did experience the same drop-off in cigarette sales everybody else did right after April 1, and we’re seeing the same rebound in sales everybody else has over the last several weeks,” he said.

“What’s brought the overall volume of our sales back has been the fact that many of our customers have switched to the generic brands,” he said. “But the volume of sales of the major brands has not rebounded all the way back yet, though some of them are starting to lower their prices.”

As overall sales have improved, so has the mood of customers, said Paul Chambers, owner of Chambers Marathon in Danville.

“They have calmed down and don’t talk about the tax increases anymore,” he said.

“But right before and after the state sales tax was increased, everybody was complaining to me about it, like I was the one that raised the taxes,” he said.

“I told them, ‘Don’t gripe at me. Go to Frankfort and gripe at the governor and legislature,’” he said.

Meanwhile, there apparently is little to gripe about in revenue-strapped Frankfort. The increase in the state sales tax on cigarettes has pumped up tax receipts.

According to the state Department of Revenue, cigarette sales tax receipts during the April-July period this year totaled more than $92 million, which is an increase of more than $34 million, or nearly 60 percent, over the $58 million in receipts recorded for the same four-month period in 2008.

SO YOU KNOW

The state legislature increased the sales tax on cigarettes to 30 cents a pack and to $3 a carton, effective April 1. Since then, revenue from the tax increased from $58 million to $92 million, or by nearly 60 percent, when comparing April-July to the same four-month period last year.

The state also received another $16,351,818 during April-July from its floor stock tax on cigarette inventories.

Source: Kentucky Department of Revenue

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