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New tax burns small cigars

PROVIDENCE - A little-noticed tax increase that went into effect late last month could choke off sales of small cigars - a niche tobacco product sought out by price-conscious smokers, according to some retail industry members.

As of June 27, Rhode Island began applying the state's cigarette tax of $2.46 to packs of small cigars - machine-made tobacco products often similar in size to cigarettes and sold in packages of 20, like their more-popular counterparts.

These cigars are wrapped in brown paper to make them look like traditional cigars but often come with filters like cigarettes. They tend to be preferred, industry members said, by thrifty smokers looking to escape the cigarette tax. Until last month, only the state's 7-percent retail sales tax applied to them.

The new tax is applied as stores sell out the inventory of small cigars they had in place before June 27.

"The one who's going to bear the brunt of this is the stiff who is smoking that garbage," said Eric Chaika, owner of the Red Carpet Smoke Shop, on Waterman Street.

Tobacconists such as Chaika don't ordinarily carry small cigars such as the ones newly subject to the state's cigarette tax. In Rhode Island, packs of small cigars tend to be sold at convenience stores such as the East Side Mini Mart, on Brook Street. And even there, the cigars make up a tiny portion of sales.

"It's a very small percentage," said Dave Faria, the Mini Mart's owner. "I think it's the clientele we serve."

Most of his customers are college students who buy toilet paper and other essentials, or grab-and-go snacks they eat between classes.

Still, he said, there are some small-cigar loyalists who come in just to buy packs of King Edward, which sell for $1.65, plus 12 cents in sales tax.

When Rhode Island last increased its cigarette tax, in 2004, Faria said, "Our cigarette sales over the next year dropped 60 percent - it was a massive hit."

Some smokers switched to the little cigars now subject to the same tax, but overall cigarette sales never recovered to their pre-2004 level.

Yesterday, Faria had one pack of King Edward cigars left priced at the old rate.

The new tax would push the retail price to $4 or more - if he carries them.

That's not going to happen, he said, because at least one regular buyer told him he won't purchase them when the price goes up.

"We were [selling] a couple of cartons a week," Faria said.

He predicted that people looking for small cigars on the cheap will buy them from states that don't tax them as sharply as Rhode Island now does.

"People will cross the [state] line for 50 cents," Faria said.

Tobacco products distributor Jeff Polep agreed.

"People who smoke these little cigars will always smoke little cigars, they'll just buy them in a different place," said Polep, owner of J. Polep Distribution Services, in Chicopee, Mass.

He supplies tobacco products, candy, ice cream and other products to stores in New England and New York, including the East Side Mini Mart.

He said he expects Rhode Island stores to lower or eliminate orders for small cigars.

"It really becomes cost prohibitive," Polep said. "It's a question of whether [the cigars] will even sell at that price."

Wednesday, July 30, 2008

Source: Providence Journal

New tax burns small cigars