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NY Lawmakers Approve Nation's Highest Tobacco Tax as Part of Emergency Budget Bill

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David Paterson, in Albany

The New York State Legislature has approved a weekly emergency spending bill to keep the government running.

It includes, at the direction of Gov. David Paterson, new taxes on cigarettes and the authorization to collect taxes on tobacco sold to non-Indians on tribal lands.

Paterson, continuing his recent tactic of placing parts of his budget in the weekly emergency spending bills, gave legislators the choice of approving steep new taxes on tobacco or shutting down the government.

The Senate voted to approve the bill, 33 to 28, with GOP Sen. Roy McDonald of Saratoga voting with Democrats.

The taxes include an additional $1.60 a pack on cigarettes, and new taxes on cigars, snuff and other tobacco products. The bill would also, for the first time, authorize a plan to collect the tax on cigarettes sold to non–Indians on Indian lands, something that has eluded several past governors.

During debate on the Assembly floor, the ranking Republican Ways and Means committee member, Jim Hayes, said the process is “spiraling out of control," and gives New York the “dubious distinction” of having
the highest cigarette taxes in the nation.

“You’ve never met a tax you didn’t hike,” quipped Hayes, sarcastically.

Democrat Denny Farrell, the Ways and Means Committee Chair, admits the tax is high, but says it has the dual benefits of discouraging smoking and raising money for health programs.

“It’s a win–win tax,” said Farrell.

The measure passed by a significant margin in the Assembly. In the Senate, one Republican, Sen. Roy McDonald of Saratoga, voted with all 32 Democrats to approve the new taxes 33 to 28. 

Joe Murillo, vice president and associate general counsel of Altria Client Services, calls the tobacco tax package a “massive unprecedented tax increase” that won’t bring in the revenues that lawmakers predict. Altria is the parent company of cigarette maker Philip Morris USA. Murillo says the additional $1.60 per pack tax on cigarettes, combined with New York’s already highest in the nation taxes on tobacco, will only lead to more underground sales and smuggling.

Russ Sciandra, with the anti-smoking coalition New Yorkers for a Tobacco Free New York, which supports the new taxes, says the provision to finally collect the sales tax on cigarettes sold to non-Indians on Indian lands will put a big dent in the underground cigarette market. He says the collections involve requiring wholesalers to pay all of the taxes on the cigarettes upfront, then issuing coupons for Indians to essentially get a discount when they purchase cigarettes at tribal stores.

The bill also includes a clause that allows Paterson to negotiate settlements with Indian tribes for a different method to collect the payments, or to include the tax payments as part of a larger deal on gambling casinos or other items. The convenience store group that has long backed the collection of the taxes, known as “Enforce the Law, Collect the Tax”, opposes that provision. They say it could lead to tribes selling cigarettes that they manufacture themselves, without paying the tax, and would continue what they view as unfair competition by the tribes.

Both opponents and supporters do agree on one thing. They estimate at least one third of all cigarettes now sold in New York are purchased without buyers paying the state-mandated taxes.