Will Cigarette Tax Hike Hurt Border Sales?

Will a 20-cent hike in the state's cigarette tax be an economic drag for stores in greater Salem?

On Wednesday, the New Hampshire House of Representatives voted 193-167 to increase the state's cigarette tax by 20 cents, from $1.68 to $1.88 per pack.

Each 10-cent increase generates an estimated $10 million in state revenue a year, according to the bill sponsors. State Rep. Cindy Rosenwald (D-Nashua) is the prime sponsor of the bill, House Bill 659.

Critics of the bill argued it would erode cross-border sales and be an economic drag.

"Raising the tax on tobacco yet again does not make New Hampshire more competitive," said Rep. Laurie Sanborn (R-Bedford). "With a tobacco tax increase, we are saying, 'Don't bother to come to New Hampshire.'"

Sanborn, the House Republican Policy Director, said consumers coming from Massachusetts purchase more than cigarettes; they also may buy–or forgo buying–home goods, gasoline, liquor, and an array of retail products.

Rep. Mary Cooney (D-Plymouth) maintained that New Hampshire prices would still be lower than neighboring states by 85 cents to $2.07 per pack.

The bill proposes an increase in the tax for tobacco products other than cigarettes, at a rate increase equivalent to that of the rate for cigarettes.

Gov. Maggie Hassan's recommended budget proposed another 10-cent increase in the rate, which would bring the price per pack to $1.98 – if approved.

State cigarette taxes in New England, per the Campaign for Tobacco Free Kids:

• NH: $1.68
• MA: $2.51
• VT: $2.62
• RI: $3.50
• ME: $2.00
• CT: $3.40

Through February, the state's tobacco tax was tracking 7 percent below plan. The projected tobacco tax revenue for fiscal year 2013 is $137.3 million. The 20-cent increase per pack will mean $39.3 million in state revenue over the biennium, fiscal years 2014-2015, according to Rep. Susan Almy (D-Lebanon), chairwoman of the House Ways and Means Committee.

"We hope you will recognize the need for revenue to fund the state's most basic commitments," Almy said before the vote.

House Majority Leader Gene Chandler (R-Bartlett) issued a statement criticizing the increase:

"With tobacco sales on the decline and border sales dwindling, the last thing we need is another increase to the tobacco tax. This regressive tax not only makes New Hampshire businesses less competitive, but according to the Department of Revenue Administration, will result in 5.4% reduction in sales, hurting state revenues. Studies have shown that when customers travel to New Hampshire to purchase tobacco products they also tend to purchase non-tobacco products as well. These additional sales will undoubtedly disappear hurting our retailers’ bottom line."