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The cigar tax: Burning down the house

DAVID GAROFALO of Londonderry, owner of the Two Guys Smoke Shop chain, moved his shop from Boston across the state line to Salem after Massachusetts put him out of business with a cigar tax in 1996. Now New Hampshire is about to do it to him again.

"In 1996, Massachusetts was going to pass a tax on cigars from zero to 15 percent. As the biggest retail store in Boston at the time, I said you are going to force me to move," he said.

"They did it, we moved up here to Salem, N.H., and our business thrived."

Massachusetts doubled that tax to 30 percent in 2002, and Garofalo's business increased again.

Having no tax on cigars is helping New Hampshire's economy. There are 27 cigar shops in the state, store owners say. And more are on the way. Garofalo plans to open one in Nashua in April. But not if House Bill 1510 passes.

"We will be out of business the day before the tax goes into place. That's a promise. We can't pay it."

HB 1510 bill would impose a 60 percent tax on the wholesale price of all cigars. You read that right: 60 percent.

The tax would apply to all inventory, not just each cigar sold. So a dealer such as Garofalo, with an 8,500-square-foot store and thousands of cigars in stock, would suddenly have to hand tens of thousands of dollars to the state for the privilege of continuing to do business.

Roy Kirby, a former employee of Garofalo's, opened a Two Guys Smoke Shop in Seabrook. He took out a loan on his home to open the 3,000-square-foot store. He cannot afford to pay a 60 percent tax on his inventory, he said.

"I'll go bankrupt and be out on the street," he said.

New Hampshire cigar shops thrive on business from Massachusetts residents who come here to buy their cigars or stop on the way to or from other attractions such as skiing or hiking. A 60 percent tax would push the price of cigars sold here higher than the price of those sold in Massachusetts, with its 30 percent cigar tax and 5 percent sales tax.

New Hampshire cigar shops are booming because the absence of a sales or cigar tax gives them a competitive advantage over their Massachusetts counterparts. This is the very definition of the New Hampshire Advantage.

And yet legislators are proposing to hand that advantage to Massachusetts cigar shops. Many, if not most, New Hampshire shops would immediately go out of business. The additional revenue legislators hoped to soak from them, as well as the business tax revenue they currently generate, would disappear with them.

It is our Legislature's job to protect the New Hampshire Advantage, not destroy it. If legislators continue to attack businesses of which they disapprove, they will soon find the state even shorter on cash, and on businesses from which to extract it.

Source: The Union Leader