New York state lawmakers passed a $177 billion budget for 2021 that includes, among many items, tax relief for some small business owners. For New York tobacconists, many of which qualify as small businesses, that relief may not be enough to overcome the fact that the budget will also significantly raise cigar taxes. Some fear the change could drive stores out of business in the Empire State.
The tax rate of 75 percent of a cigar’s wholesale price—one of the highest cigar tax rates in the United States—will take effect on October 1.
The 75 percent cigar tax is not new: it has actually been New York’s official rate since 2010 when it was raised from 46 percent. But due to a loophole that was passed in December 2013, retailers have had the option to calculate the wholesale price themselves if “an established price or manufacturer's invoice price is not available.” Since cigar shops typically receive their products through distributors rather than directly from manufacturers, they were able to utilize this “industry standard adjustment ratio” and pay a much lower tax, roughly 38 percent.
The New York state budget, which was passed by lawmakers on April 2 and signed by Gov. Cuomo on April 3, removes this adjustment ratio clause, meaning the tax rate will jump to 75 percent of a cigar’s wholesale price, a steep increase.
For cigar smokers, it means cigars will become more expensive. Using the current adjustment ratio, a $6 cigar (with a $3 wholesale price) carries a New York state excise tax of roughly $1.14; a $10 cigar ($5 wholesale) gets hit with a $1.90 tax. Without the adjustment, the tax on the $6 cigar would shoot up to $2.25, while the $10 cigar would be taxed $3.75.
According to James Wiedenbeck, the general manager of Tinder Box in Williamsville, New York, the new tax could have devastating effects on New York cigar shops. Wiedenbeck is not only a retailer, but is also the secretary of the New York Tobacconist Association, an organization of tobacco retailers that work to secure and protect the rights of cigar shop owners, which are roughly 90 percent single-store and family-owned establishments.
“The NYTA estimates that 25 to 50 percent of current New York tobacconists will go out of business because of this tax change, Wiedenbeck told Cigar Aficionado. “This tax is punitive and puts New York small businesses out of business.”
The increased tax rate will, eventually, be paid by the consumer. The NYTA fears that customers will turn to alternative sources such as online retailers or neighboring states with lower (or no) cigar taxes to get their smokes.
“Their options are as close as their smartphone,” said Wiedenbeck.
The NYTA hopes that issues in the budget can still be discussed and possibly changed, and remains committed to working hard on the issue. The Cigar Rights of America has also set up an Action Center link where concerned cigar smokers can easily send a message to the Governor's office as well as members of the New York legislature.