Retailers' tobacco fees rise

Tobacco retailers have another government fee to absorb beginning in January.

Retailers who sell cigarettes and tobacco products will see their application fee, paid to the state Department of Taxation and Finance, increase from at least tenfold to more than 50 times the current level. The fee is levied at the beginning of each calendar year.

Stores such as Smitty's Smoke Shop, 7537 S. State St., Lowville, who sell less than $1 million in all products each year, must pay $1,000 in 2010 compared to the $100 fee that's been collected for years.

"It's terrible, just terrible," owner Michael J. Smith said. "I don't even know if we want to stay in business."

He said cost-conscious consumers will choose to go down the street to a chain store instead of buying tobacco products at his store if his prices are just a few cents more.

"You can only raise the prices so much," he said. "Competition is brutal."

The increase was part of the state's 2009-10 budget. According to Department of Taxation and Finance information, all retail locations had a $100 fee before 2010. Now, those that have total gross sales between $1 million and $10 million will see their fee increase to $2,500 and those that sell more than $10 million will see an increase to $5,000. The application fee to keep a cigarette vending machine is also increasing, as are penalties for failing to register.

According to the state's Division of Budget, the increased fees are expected to bring in $16.7 million during the 2009-10 fiscal year. The fee was last changed in 1990.

"This is one of many revenues that were increased in the face of an unprecedented fiscal crisis, with revenue increases preventing deeper reductions in critical services," said a division spokesman. "This change reflected changes in the business of selling cigarettes."

But business advocates say this fee just adds to the others that will hurt especially small businesses.

"The problem is that there are hundreds of fees added into the budget and people are just finding out about them now," said Karen K. Delmonico, president and chief executive officer of the Greater Watertown-North Country Chamber of Commerce.

The chamber has received complaints about this and other new or increased fees — including driver's licenses, utility assessment and sales tax certificates.

According to Unshackle Upstate, a coalition of businesses and trade organizations representing more than 45,000 companies in Upstate New York, the 2009-10 state budget increased spending nearly 9 percent and added $8 billion in taxes and fees.

Francis R. Gray, co-owner of Gray's Wholesale Inc., 513 State St., Clayton, said the state taxes alone on a $64 carton of cigarettes total $27.50. That's not counting federal or sales taxes.

"At least 50 percent of the cost of cigarettes is tax with sales tax on top of that," he said. "You're paying tax on tax."

Mr. Gray supplies tobacco and food products to several hundred small retailers in Jefferson, Lewis and St. Lawrence counties.

"I already know I'm going to lose customers," he said.

He expects up to about one-fifth of the retailers to drop tobacco products. And that could encourage customers to buy not only tobacco but also other products at shops he doesn't supply.

Mr. Gray said bars and community organizations, such as American Legion posts, will be most likely to drop tobacco products.

Watertown Mayor Jeffrey E. Graham, who owns the bar Fort Pearl, at 557 Pearl St., said he will likely drop cigarette sales.

"I don't see how I could continue," he said. "For any kind of small retailer, it means you've got to get out of that line of work."

Gary L. Rhodes, owner of Rhodes Greenhouse and Alexander Corners General Store, Henderson, said cigarettes are a must for good business.

"We've got to have them in the store," he said.

So, he will have to absorb the cost or raise prices.

"It's getting to be a nightmare to do business in New York state."