R.I. May Lower Cigarette Taxes

While most states are discussing cigarette tax increases, Rhode Island is once again considering lowering theirs.

"It's clear that the cigarette tax in Rhode Island is high, especially in comparison to many of the neighboring states," Stephen Ryan, executive director at the New England C-Store Association (NECSA), told Tobacco E-News.

So Ryan is pleased to see that the state's House Finance Committee will next week discuss legislation put forth by State Rep. Robert Phillips to decrease state cigarette taxes by $1 to $2.46 a pack. Phillips' proposal seeks to drive consumers back to Rhode Island businesses and away from retail outlets in neighboring states with lower tax rates.

"I know we're in a constant state of worry over trying to find more money, but critics of this bill who say decreasing the cigarette tax will have a negative effect on state revenues have a very short-sighted view of how this could help us," Phillips said earlier this year. "Unfortunately, we live in a small state. It's easy to drive over the border into Massachusetts and Connecticut even if you're not living in a border community. That's not a problem other states have right now."

NECSA backs up Phillips' rationale. "Certainly," Ryan said, "when you look at the tax rates of many of the neighboring states, it does put Rhode Island retailers at a competitive disadvantage."

The bill, however, faces an uphill battle. Phillips had a similar bill rejected by the state last year. Further complicating matters is the fact that New Hampshire, a state that did pass a modest cigarette tax decrease in 2011, has not seen positive results. During the first four months after the 10-cent rollback was put into place, New Hampshire collected $77.5 million in cigarette taxes--$3.5 million or 4.3% less than what the legislative budget had predicted. In the previous year, the state collected $84 million during that time frame.

But Rhode Island is a very different situation. Even before the decrease, New Hampshire boasted a relatively low state tax of $1.68, compared to Rhode Island's current $3.46 per pack.

Further undermining Rhode Island is that it holds the highest cigarette tax state in New England. Maine's tax rate is $2 per pack; Vermont's is $2.62; Massachusetts is $2.51 (with a proposed hike to $3.01 per pack); and Connecticut averages a $3.40 sales tax per pack. In a state as small as Rhode Island, lowering the tax rate to $2.46 could result in huge sales increases for retailers--and not just from cigarette sales, advocates say.

"Clearly there's a connection between a consumer that comes in to buy one product like cigarettes and picks up other products along the way," said Ryan of NECSA. "It's not just a question of that one product being sold at a competitive price--it's about the additional sales of non-tobacco products in that store.

"What it translates into is more money for Rhode Island," said State Rep. John G. Edwards (D), a co-sponsor of the bill. "The economy isn't booming right now, so our small businesses are struggling as it is. We need to stay competitive. Vendors in my community often say that people will come into their stores to buy a pack of cigarettes and leave with newspapers, candy or other items, too."

With states like Massachusetts, California and Missouri all proposing tax increases, it's certainly worth watching how a cigarette tax decrease could help Rhode Island retailers.