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N.Y. Cigarette Tax Increase Boosts Pack to Almost

July 1 (Bloomberg) -- New York smokers started paying the highest cigarette taxes in the U.S. today after an increase of 58 percent pushed some prices to almost $11 a pack.

The average price in New York City, the largest in the U.S. by population, rose to $10.80, according to Erik Kriss, a spokesman for the state Division of Budget. Outside of the city, which imposes its own tax, the state average price is $8.92.

New York led Hawaii, New Mexico, South Carolina and Utah in raising cigarette taxes today. Health advocates cheered the increases as a means to reduce smoking. Tobacco producers and retailers said higher taxes encourage black-market sales and won't generate anticipated revenue.

"A few people will quit smoking, but many more will quit coming to our stores and instead buy cigarettes from untaxed sources," Jim Calvin, president of the New York Association of Convenience Stores, said today by telephone from Albany. The group represents operators of 7,500 convenience stores.

New York lawmakers boosted the state's portion of the tax to $5.85 a pack from $4.25 in New York City. Outside the city, the tax rose to $4.35 a pack from $2.75. The tax increase is projected to raise $290 million a year from cigarettes, snuff, cigars and other tobacco products. Collecting taxes on cigarette sales from Indian reservations would raise another $150 million.

'Legal Addictions'

"It's the state trying to get money from legal addictions," said Joseph Bavaro, 21, who said he's smoked for seven years. "It's for the greater good, but it's bad to take advantage of addicts."

New York ranked 14th among U.S. states in pack sales of cigarettes last year, according to the Campaign for Tobacco-Free Kids, an advocacy group in Washington. New Yorkers bought 482.7 million packs, accounting for 2.9 percent of U.S. sales.

"I think it's horrible," said Randi Gelman, 44, a New York travel agent. "We know it's bad for us. People are out of work, no jobs, now this? It's not fair. This is just a way for the government to make back money from working people after years of stupid decisions."

Nationwide, cigarette tax increases this year will spur more than 140,000 adults to quit smoking and raise more than $561 million in annual revenue, according to the Campaign for Tobacco-Free Kids.

"It'll probably make me quit, I have to quit anyway, it's just one more reason," said Tom Tveter, 49, a salesman who lives in Rockland County, New York. He said he's smoked for 16 years.

Internet, Reservation Sales

New York's increase will prompt more smokers to buy over the Internet or from American Indian reservations and lower-tax states such as New Jersey and Pennsylvania, according to Altria Group Inc. and Reynolds American Inc., the largest U.S. tobacco companies. They said demand may rise for cigarettes unlawfully purchased in states with lower taxes and sold on the black market in New York.

"It is going to drive people away from buying cigarettes where taxes are paid," David Sutton, an Altria spokesman in Richmond, Virginia, said today. "The revenue projection will fall short."

Starting Sept. 1, New York plans to collect taxes on cigarettes sold on Indian reservations to people who don't live there. The state hasn't tried to make the collections since the early 1990s.

The tax on other tobacco products, including cigars, loose tobacco and chewing tobacco, will rise to 75 percent of the wholesale price, from 46 percent of the wholesale price on Aug. 1, according to Kriss, the spokesman for the Division of Budget.

That boost, combined with an increase in the tax on snuff to $2 per ounce, from 96 cents per ounce, will generate an additional $30 million, he said.

"It's not fair, but if it wasn't this, it'd be something else," said Richard Battle-Baxter, 28, who said he's smoked for four years. "I'm not quitting because of this, though. I've got too much stress."

--With assistance from Michael Quint in Albany, New York, and Alex Sherman in New York City. Editors: Pete Young, Walid el- Gabry

Source: Bloomberg Business Week