Tax hike may send smokers across border
The State Line Station is stocking up on cigarettes for an expected surge in smoker Smokeless nicotine demand when South Dakota’s
$1-a-pack tax hike takes effect Monday.
Store manager Kathy Drentlaw unloaded a shipment of tobacco products Friday to prepare for an increase in sales to South Dakotans expected to cross the border to save money on the tobacco products they smoke or chew.
She has another shipment on the way, which is expected to arrive from Denver when the weather clears.
“I’ve tripled (orders) on some brands. And we’ve had a lot of phone calls from Lead, Belle Fourche, Sturgis, asking us to carry some brands if we don’t,” Drentlaw said. “We’ve already ordered in two brands we didn’t have.”
Drentlaw figures South Dakota’s loss will be State Line’s gain, not only for tobacco sales but for other items as well.
“It’ll be a big boost – gas and snacks, and hopefully, they’ll see what great souvenirs we have and start buying those also,” she said.
The increased tobacco tax approved by state voters Nov. 7 takes effect Monday. It will add $1 to the existing 53-cent state tax on a regular pack of 20 cigarettes and increase the tax from 10 percent to 25 percent on the wholesale price of other tobacco products.
Supporters of the tax increase said it would raise $40 million for state programs and programs to discourage tobacco use and help users quit.
The tax increase, which would drive up the cost of cigarettes, is also designed to encourage some smokers to quit.
Opponents say it unfairly targets tobacco users, is likely to reduce state revenues, increases cigarette bootlegging and purchases in other states and will do little to reduce smoking rates among South Dakotans.
Patrons and employees at Thrifty Smoke Shop on St. Patrick Street in Rapid City said smokers and users of other tobacco products will simply turn to the Internet and other states to satisfy their cravings.
Smokers Susan Francis and James Litz of Rapid Valley, who stopped at the store for some cigarettes Thursday, said the tax was another way for government to reach into the pockets of taxpayers to put more money in the state general fund. They intend to buy their cigarettes online or in other states when possible to avoid paying the new tax.
“It’s the principle more than the money,” Litz said. “It’s another sin tax. And the money is just going into the general fund.”
Francis added, “We are going to be checking it out online, believe me.”
Shift manager Pete Kegley said he doubts that the increase price will discourage young people from smoking. But it will make it more attractive to drive across the state border to buy tobacco, he said.
“The intent is to encourage people to stop. But you’ll just see people going across the state line,” he said. “And if they’re there, they’ll get some gas and other things.”
Aaron Wilke of Rapid City stopped at the shop Thursday to buy a stack of Copenhagen “spit” tobacco. He bought the tobacco for $3.70 a can but expects to pay almost a dollar more a can under the new law.
Wilke said it’s unfair to target tobacco users so specifically.
“Why isn’t alcohol going up, when you’ve got such a problem with DUIs?” he said. “And how about fast food and what it does to your health. Look at those big, huge monster burgers they’re selling.”
Kegley said people who believe the higher tax will benefit the state financially are kidding themselves. The switch to online purchases and cross-border purchases will cost tobacco sellers in South Dakota and result in fewer tax dollars for the state, he said.
The tax also has implications for a multi-state damage settlement with tobacco companies that has produced more than $21 million a year for the state, he said.
State officials are examining that issue right now and expect to discuss it more completely during a Jan. 8 meeting in Pierre, a day before the start of the 2007 state Legislature. Attorney General Larry Long will advise the group on likely impacts of the increased tax on tobacco sales and examine where it could affect the tobacco-settlement money in the future.
If enough people find ways to buy their tobacco products without paying the state tax, it could accelerate the market-share loss for the major tobacco companies that participated in the settlement. If the loss is too great, terms of the lawsuit could require South Dakota to show that it is diligent in enforcing provisions of the settlement designed to minimize the loss of market share for those companies.
If the state fails to show that, it could have to repay some of the settlement money.
“If we have more and more going to the Internet and other sources to buy cigarettes, that increases the likelihood that tobacco companies will lose market share and increases the pressure on us to enforce the terms of the settlement and avoid the penalty,” Long said.
Drentlaw doesn’t have to worry about that these days. She simply wants to make sure she has the tobacco products that South Dakota buyers want – and plenty of them.
Drentlaw said she watched sales shrivel when Wyoming increased the tobacco tax a few years ago and has watched them slowly rebuild. Now, she expects a surge, particularly when South Dakota tobacco users run out of the products they have been buying in bulk before the tax hike.
“A lot of people have stockpiled,” she said. “I don’t expect to see the real boost for another few weeks. When they run out, they’ll start coming over.”