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Tennessee: Tax hike snuffs cigarette sales

By: Dave Flessner
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Cathy Taylor

Angela Haygood lives and works in Chattanooga, but after Tennessee raised its tax on cigarettes, she regularly goes to Georgia to buy them.

“I usually buy a carton of cigarettes every couple of weeks, and buying them in Georgia has been saving me more than $3 for every trip,” the St. Elmo resident said while taking a smoke break from her job at Unum Corp. in Chattanooga. “That more than pays for the gas it takes to drive across the border. People I know who smoke in Nashville are driving all the way to Kentucky to buy cigarettes.”

When the Tennessee Legislature voted a year ago to more than triple the state’s tax on cigarettes from 20 cents to 62 cents a pack, the Volunteer State elevated its tobacco tax above all eight of its neighboring states. Tennessee’s higher general sales-tax rate and extra 25-cents-per-pack cigarette tax over neighboring Georgia is encouraging many Chattanooga smokers to head south of the border to feed their nicotine habit.

Proponents of the higher tobacco tax implemented last July insist it is helping limit health-damaging smoking, especially among price-sensitive teens, while also providing extra money to fund the state’s Basic Education Program. Combined with new limits that started last October on indoor smoking in most public places and a $10 million state campaign this year to help smokers quit, Tennessee quickly has emerged as a leading state trying to combat tobacco consumption while also being one of the top cigarette consumption states in the nation.

According to the U.S. Centers for Disease Control and Prevention in Atlanta, nearly one of every four Tennesseans still regularly use some type of tobacco product — the fifth highest rate of any state in the United States.

“We call it the “Tennessee trifecta,’” said Pete Fisher, vice president for state issues for the Campaign for Tobacco-Free Kids, an anti-smoking advocacy group in Washington, D.C. “For a tobacco-growing state that still has one of the highest smoking rates in the country, the increase in cigarette taxes, smoking restrictions and anti-smoking education coming in the same year is truly historic.”

But critics suggest the higher tax on cigarettes in Tennessee also may be driving more smokers out of the state to buy cigarettes, leaving the state with less-than-expected revenues.

“States all over the country have raised cigarette taxes in the past couple of years and, in virtually every instance, the projected revenue comes out being less than what was forecast,” said Steve Stanek, a research fellow for The Heartland Institute and managing editor of its monthly “Budget & Tax News” publication. “State tax collectors hope people would keep smoking even as health officials hope people stop smoking. Higher cigarette taxes are bad for a host of reasons beyond the absurdity of government relying on smoking even as it tries to stamp out smoking.”

Cigarettes fund schools

Gov. Phil Bredesen pushed the higher cigarette tax as a way to help pay for improvements in the state’s Basic Education Plan.

Staff Photo by Dan Henry -- Chattanooga resident Tony Scott purchases a pack of cigarettes from Jessica Roth at the Ga. Hwy 41 Mega Star gas station Thursday afternoon. Ms. Roth has been working for the station for three years and recognizes the regulars that purchase their cigarettes at her store due to the cheaper price.

While the higher tobacco tax has more than doubled tax collections from smokers, the extra levy on cigarettes still generated $62.3 million less in its first 10 months than what the state forecast. The unexpected plunge in taxable sales of cigarettes is one of the reasons Gov. Bredesen announced plans to cut more than 2,300 state government jobs this summer.

State Revenue Commissioner Reagan Farr said it is still too early to measure the lasting impact of the higher tax since, in the spring of 2007, tobacco wholesalers rushed in to buy and pay the tax on millions of cartons of extra cigarettes ahead of the July 2007 tax hike.

“Cigarettes are one of the few commodities that are taxed before they are sold to the ultimate user,” he said. “The tax revenue numbers came in higher than normal during the end of fiscal 2007, and that has hurt collections through much of the past fiscal year.”

Mr. Farr said the drop in cigarette sales — down more than 30 percent in some months of the current fiscal year — was far more than what was budgeted.

Last month, for the first time in the 10 months of fiscal 2007-2008, taxable cigarette sales were higher than a year ago, which Mr. Farr said should be closer to the long-term trend for sales and tax collections.

State health officials remain hopeful that the higher tax discourages consumption and doesn’t just encourage smokers to go elsewhere to buy cigarettes.

“Certainly, we want to decrease smoking in Tennessee and think higher tax rates will help in that effort,” said Cathy Taylor, assistant state commissioner of health who oversees Tennessee’s anti-smoking campaign. “However, along with many others who are tracking this, we recognize it is still far too early to know the long-term impact.”

Tennessee, which previously raised its cigarette tax from 13 cents to 20 cents a pack in 2002, more than tripled its cigarette tax on July 1, 2007, in the biggest increase of its kind ever in the state. Three months later, the state also implemented a ban on smoking in offices, restaurants and other public places and limited smoking to adult-only businesses such as bars or smoking lounges.

Support for smoking ban

A new survey conducted by the Global Strategy Group on behalf of the Tennessee Department of Health and the Campaign for Healthy and Responsible Tennessee found most voters in the Volunteer State favor the smoking restrictions. The telephone poll, taken last month, found 74 percent of the respondents favor the smoking limits implemented last year under the Tennessee Non-Smokers Protection Act.

Nearly as many respondents, 72 percent, said they would favor a statewide ban on smoking in all indoor workplaces, offices, bars and restaurants. Smoking still is allowed in restaurants and bars that allow only those age 21 and older or in small stores or restaurants with patios and garage-type doors open on all sides.

Shirley Cudabac, the Southeast Tennessee regional director for the American Lung Association, said a growing number of Tennesseans recognize the health problems associated with smoking and the risks from being exposed to second-hand smoke.

“These changes are hugely significant and hopefully will begin to reduce our historically high rate of smoking,” she said.

But in the top-cigarette states, anywhere from 28 to 24 percent of the population still smokes, so the job is substantial, Dr. Taylor said.

“The objective for our nation for the year 2010 is to get smoking down to only 12 percent of the adult population, so we obviously have a long way to go,” she said.

Tennessee’s $10 million campaign in the current fiscal year provides the state’s biggest effort ever to mount educational and media campaigns to discourage smoking, including a “quit line” offering counseling and help to low-income smokers trying to kick the habit.

In the fiscal year that starts July 1, however, the state’s budget for its anti-smoking campaign will be cut to $5 million. The tobacco industry is projected to spend more than $400 million nationwide this year to market its products.

Cross-border limits

State revenue agents also boosted enforcement activities last year to limit Tennesseans from buying bulk quantities of cigarettes in other states with lower cigarette taxes.

Mr. Farr said state law limits any individual from carrying more than two cartons of cigarettes across the state line into Tennessee. Last year, revenue agents followed some major cigarette purchasers who went out of state, stopping the smugglers and confiscating their cigarettes, Mr. Farr said.

But the state doesn’t try to block Tennessee smokers who regularly buy a pack or even a carton or two in another state.

Doris Johnson of East Ridge said she regularly crosses the state line to buy cigarettes and escape Tennessee’s higher tax rate.

“I’ll keep going to Georgia to buy cheaper cigarettes,” she said.

Like many Tennessee smokers, Ms. Haygood said she “feels like a second-class citizen” because she smokes and doesn’t like paying higher taxes on her cigarettes. But she isn’t giving up her habit.

“When you are outside in a well-ventilated area and people are rude to you, that’s when I get upset,” she said. “My husband and I used to go out to eat every weekend. But now we’re more likely to stay at home where we can enjoy having a cigarette after our meal.”

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