New Tax Fires Ingenuity of State’s Die-Hard Smokers

With a heavy sigh--the cathartic exhalation of the day’s first cigarette--a weary Dave Masters says he’s up to the task: beginning his take-no-prisoners national search for the proverbial pack of cheap smokes.

He’ll scour the Internet and mail-order services for tax-free deals. He’ll rely on the kindness of East Coast relatives for cigarette care packages from tobacco-friendly states like Virginia and North Carolina.

Streaming into a Cigarettes Cheaper! outlet near downtown Pasadena, smokers like the 60-year-old Masters said this week they might even be inclined to take advantage of other opportunities to beat a new statewide tax on their favorite vice--referring to a shadowy $50 million-a-year black market authorities acknowledge is very real and on the rise.

“As a smoker, you’ve got to do what you’ve got to do,” said Masters, a Pasadena resident who smokes Pall Malls. “They throw up all this interference. But where there’s a will there’s a way. Oh, and we’ll find those cheap smokes out there, believe you me.”

These are indeed troubled times for California smokers. Booted from bars and restaurants not even a year ago, they now face another rude shock: Cigarette prices could soon rise by as much as a dollar, to $3 a pack or more.

Proposition 10, all but assured victory with a lead of almost 60,000 votes, will raise prices 50 cents a pack on Jan. 1--giving California the third-highest cigarette tax rate in the nation, behind Alaska and Hawaii. And the settlement of the state’s lawsuit against the tobacco industry, now in the works, could add perhaps another 50 cents to each pack sold in California.

Cigarette smokers aren’t the only puffers to come under such economic and social fire. The terms of Proposition 10 call for the cost of a cigar to rise in January and then jump again six months later--all due to new state taxes.

The price hikes leave 4 million California smokers with some rather distasteful choices: Cough up the extra money; quit their unpopular habit altogether; make a run for the border.

When the price of cigarettes went up in New Jersey this year, smokers took their business to neighboring Pennsylvania. When Michigan raised its prices, cigarette sales soared in Indiana.

“Everything under the sun is going to happen in California,” said Tom Humber, president of the National Smokers Alliance. “It’s a big state with lot of smokers. A fifty-cent differential is certainly incentive enough for those who have the proximity to go somewhere else.”

California smokers are driven by more than just economics, Humber said. There’s also the anger factor.

Having already been driven from bars and restaurants by a state law that took effect Jan. 1, smokers increasingly feel the long arm of government intrusion into what they believe is a very personal choice.

“The whole somewhat nasty public attitude toward smokers has made them angry,” Humber said. “They have questions about where the money from these new taxes is going to go. The answer is: into programs that nobody really understands.”

Backers expect Proposition 10--which raises prices on all tobacco products, not just cigarettes--to collect $700 million annually for social service causes, especially families with children under age 5. Funds will also go toward smoking cessation programs, immunizations and domestic-violence prevention.

And health experts, including the National Center for Tobacco-Free Kids in Washington, D.C., say that higher prices discourage consumption of cigarettes, particularly among price-conscious teenagers.

State officials have little idea how much state revenue might be lost from cigarette purchasers fleeing to other states, or, as some Southern Californians say they’re prepared to do, heading to Tijuana.

Smokers already save more than $1 per pack there by buying American name brands, such as Marlboro or Raleigh, that are manufactured in Mexico. Name-brand smokes made in the United States are also cheaper in Mexico--by 50 cents or more per pack.

Proximity to the border has some San Diego smoke shop owners worried about an exodus of customers. “I’ve heard customers say, ‘Well, I’ll just go to Tijuana,’ ” said Jeff Neichin, a clerk at Bad Habits, a tobacco shop in San Diego.

Along other California border areas, smokers might make a run to neighboring states where cigarettes are cheaper. With the Proposition 10 increase, taxes on California cigarettes will reach 87 cents a pack--compared with 58 cents in Arizona, 68 cents in Oregon and 35 cents in Nevada.

The California tax will add about $5 to a carton of cigarettes, bringing the total to about $25 per carton--significantly more than in neighboring states.

Border-jumpers are just what Tia Laffoon is hoping for.

“We welcome the Californians with open arms,” said the assistant manager of Pete’s Smoke Shop in Parker, Ariz. “We’re competitive. We can beat the prices in their state. And we’re ready to do business.”

Laffoon said history has shown that Californians will jump state lines in search of cigarette deals. In 1994, before Arizona raised its cigarette tax, prices were much lower there.

“The Californians were our best customers,” she said. “Once their prices go up, they’ll be back. They can smell a good deal over there.”

Officials say a growing cigarette black market costs Californians $50 million a year in lost taxes--a market that will only see opportunity in the new tax hikes. As demand intensifies, small shop owners or even street vendors may be willing to risk arrest by selling untaxed cigarettes, said Monte Williams, chief of the excise taxes division for the state Board of Equalization, which manages the state’s cigarette taxes.

“It’s already a big problem and it’s going to get bigger,” Williams said. “Any time you have a tax, people are going to try to avoid it. Human nature is human nature.”

One recent arrest involved smugglers who were spiriting American-made, for-export-only cigarettes back across the border from Mexico. “They were moving 3,000 cartons a week, which they sold in Los Angeles and San Francisco,” Williams said. “That’s the kind of thing we’re going to be looking for once this new tax kicks in.”

U.S. Customs officials say they will be on the lookout for a beefed-up illegal cigarette trade.

“If there’s a market, people will try to fill that market,” said Rudy Camacho, who heads regional customs operations in San Diego. “Smuggling has changed over the decades from Prohibition, when it was liquor. Now it’s drugs. It would be very naive of any official to think there would not be a smuggler [to] fill that void.”

At Cigarettes Cheaper! in Pasadena--a tiny shop lined with endless cartons and packages of smokes--regular customers talk about all kinds of drastic measures they might take to score their cigarettes.

Manager Mike Warner says such threats are all hot air.

“Getting cigarettes the way people say they’re gonna do just sounds like an incredible hassle to me,” said Warner, who doesn’t smoke himself. “Way too much rigmarole.”

Masters says he went back to North Carolina last year for his 40th college reunion and brought back 40 cartons of cigarettes, which he stored in his freezer.

Those are all gone now. If he wants more, Masters says, he’ll have to write his son for a care package.

Or, he guesses, he could always just up and kick the habit.

But Sid Warner, who helps out his son behind the register, has watched the price of cigarettes skyrocket from 35 cents in 1963, when he opened the first of several liquor stores, with little impact on smoking habits.

“They went up a nickel and people said ‘That’s it, I’m quitting!’ Then it was, ‘As soon as they reach a dollar a pack, I’m gonna quit.’

“People are always gonna quit. But they always come back.”

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The Tax on Lighting Up

Proposition 10’s passage has raised the state cigarette tax to $0.87 from $0.37 per pack. The following charts show cigarette taxes in each state, as well as the total amount of cigarette taxes collected by the state of California in the past nine years.

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State State tax per pack Alaska $1.00 Hawaii $1.00 California $0.87 Washington $0.821/2 New Jersey $0.80 Massachusetts $0.76 Michigan $0.75 Maine $0.74 Rhode Island $0.71 Oregon $0.68 Wisconsin $0.59 Illinois $0.58 Arizona $0.58 New York $0.56 Utah $0.511/2 Connecticut $0.50 Minnesota $0.48 North Dakota $0.44 Vermont $0.44 Texas $0.41 New Hampshire $0.37 Maryland $0.36 Iowa $0.36 Nevada $0.35 Nebraska $0.34

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State State tax per pack Arkansas 0.34 Florida $0.33.9 South Dakota $0.33 Pennsylvania $0.31 Idaho $0.28 Delaware $0.24 Ohio $0.24 Kansas $0.24 Oklahoma $0.23 New Mexico $0.21 Colorado $0.20 Louisiana $0.20 Montana $0.18 Mississippi $0.18 West Virginia $0.17 Missouri $0.17 Alabama $0.161/2 Indiana $0.151/2 Tennessee $0.13 Georgia $0.12 Wyoming $0.12 South Carolina $0.07 North Carolina $0.05 Kentucky $0.03 Virginia $0.02

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Source: Tobacco Institute

California cigarette tax revenue in hundreds of thousands of dollars

Note in 1989, the state tax on cigarettes increased from $0.10 to $0.35 per pack; in 1994, the tax increased to $0.37 per pack.

Source: State Board of Equalization.