The first of October marked the closure of a tax loophole that allowed New York tobacconists to maintain a roughly 38 percent tax on cigars. Now, the Empire State’s cigar tax has nearly doubled to 75 percent of the cigar’s wholesale price—one of the highest in the nation—and retailers are already feeling its effect on business.
“Everyone is complaining about the price increase,” said Danny Ditkowich, one of the owners of Tobacco Plaza in Great Neck, which is located in Nassau County, Long Island. “I had a guy who comes in every day and spent $40 and came out with four cigars. Now he comes out with three cigars. He’s spending the same amount but losing one cigar.”
Signed into effect on April 3 by Gov. Andrew Cuomo, the tax increase was part of the $177 billion budget for New York state that had also created tax relief for smaller businesses. Tobacconists worry about staying in business with such a drastic jump in price. In what has already been a difficult year with the outbreak of Covid-19, Vanessa Nastri of Barclay-Rex in New York City, is particularly incensed, especially given the difficulties retailers are currently facing.
“We’re all in survival mode and it stinks,” said Nastri. “Adding another high tax is only driving more people to order online or shop out of New York State. We were hoping that our lawmakers and elected officials would have fought to help small businesses, especially during this tough time, by delaying the implementation of this tax hike. Unfortunately, this did not happen.”
Cigar Aficionado reached out to several cigar shops in New York state to find out exactly what the tax hike means to the average customer. At the Davidoff store on Manhattan’s tony Madison Avenue, a Davidoff 702 Series Aniversario Double R that previously retailed for $40.40 per cigar now costs $48.50. Further downtown at Barclay-Rex, a Padrón 1964 Anniversary Series Exclusivo has gone from $14.50 to $17.50. And upstate in Saratoga Springs at James & Sons Tobacconists, an Arturo Fuente Hemingway Signature has gone from $9.99 to $11.99.
Kyle Kommer, manager and one of the titular sons of James & Sons, told Cigar Aficionado that he has been receiving complaints from customers who were unaware of the new tax and saw the price of their cigars go up $2 or $3 overnight. With the pandemic and its required safety measures still ongoing, businesses like his that depend on tourism and travel have already been greatly affected.
“Summertime was a lot slower than it normally is,” said Kommer. “There’s the horse racing track in town and that doubles the population. This year, there was racing but no fans. That really hurt us because we sell over at the track as well.”
This tax is not technically a new one, as it has been in effect since 2010, but an “industry standard adjustment ratio” was introduced in December 2013 that kept the tax rate lower. That adjustment ratio gave retailers the option to calculate the wholesale price themselves in the event “an established price or manufacturer’s invoice is not available.” Since many retailers obtain their cigars through distributors and not directly from the manufacturer, they were able to pay the lower 38 percent tax. Now, retailers have to pay 75 percent of cost for any cigars they receive that were shipped after October 1.
To compensate, retailers have tried to adapt to these unusual times and use various means to ensure a continuous flow of business.
“At Davidoff Madison, as well as our other Davidoff New York stores, the greatest impact has been in the decline of foot traffic,” said Lana Fraser, head of marketing and retail for Davidoff of Geneva U.S.A. “This has caused our team to work creatively on how to best service our customers.”
It remains to be seen how many shops in New York State can withstand the compounded blow of both a tax hike and a pandemic. Even the revered Nat Sherman, which was a New York City institution backed by corporate dollars, closed its doors in September. Naturally, retailers can’t help but feel concerned.
“The governor raised the prices during the pandemic when a lot of people went out of business,” Ditkowich added. “Now, he’s chasing the other stores away that made it through the pandemic. Some of them are going to have to go out of business.”