Utah tobacco sales drop nearly 10 million packs

Jim Gibbs fears the days may be numbered for his South Salt Lake tobacco shop.

His business at The Tobacco Store has dropped sharply — a trend he blames on the long-running recession and a sharp increase in Utah's tobacco tax. He's already had to lay off one part-time worker and is probably going to have to cut his own salary in half.

"I might be on a slow decline of going out of business," Gibbs said. "I'm just barely hanging on."

Utah hiked its tobacco tax last year, raising it from 69.5 cents per pack to $1.70. For the 11 months since then, cigarette sales are down 15 percent with 9.9 million fewer packs sold, according to State Tax Commission figures, putting them on pace to drop by more than 11 million and potentially as many as 12 million packs through the end of the year.

At the same time, the revenue generated by the tax has doubled from the amount collected the year before.

Rep. Paul Ray, R-Clearfield, the sponsor of the tax hike, said the figures are "exactly what we expected."

"You kind of get the best of both worlds. We've had a huge decrease in smoking, basically, and had a huge increase in revenue from the tax," Ray said. Calls to the state-run tobacco quit line have also increased by more than 150 percent, he said.

Advocates expected that about 13,000 people would quit smoking when Utah raised its tax, but the new figures show that the equivalent of about 19,000 one-pack-a-day smokers have quit.

"Our goal was to decrease current smoking and also reduce the number of kids that take up smoking," said Michael Siler, director of government relations for the Utah chapter of the American Cancer Society Cancer Action Network, which lobbied for the tax hike.

Even if some of those customers are going out of state to buy their cigarettes, Siler said, rough projections from the Centers for Disease Control estimate that the reduction translates into about $37 million in reduced health care costs.

"It's happening. I really believe it's happening," Siler said.

David Sutton, a spokesman for Philip Morris USA, the nation's leading cigarette manufacturer, said the trends are not so clear cut. Sutton said there is always plenty of volatility month-to-month and it takes time for the number to level out.

"Depending on how you want to look at the data, clearly there's been a move there downwards," said Sutton, but it's hard to know whether people are quitting or "we suspect what it is, as it is in most states [that raise taxes] is cross-border sales."

"It's cross-border to the other states and it may well be Internet sales," Sutton said.

Figures from the Utah Tax Commission show that, during the first 11 months of the 2010 fiscal year, 66.7 million stamps were sold — the stamps have to be attached to each pack, so it is the most accurate way to track sales.

For the first 11 months the new tax has been in effect, the sales have fallen to 56.8 million. The commission is still about six weeks away from having the year-end numbers.

But the amount of revenue collected from the sales tax has come in even higher than the legislative analysts projected. Budget forecasters had estimated that raising the tax to $1.70 would bring in $43 million — beyond the $50.8 million that was already being collected.

The tax, it turns out, more than doubled the revenues collected, with cigarette and tobacco sales bringing in a total of nearly $119 million in the fiscal year that ended June 30.

Congress raised the federal sales tax by 70 cents a pack just a few months earlier.

Ray, whose mother smoked until she was diagnosed with emphysema, said his goal is to get people to quit but doesn't see any other increases on the horizon.

"I would take [the tax] as high as I could, personally, just because of the damage that smoking does to our society," he said, "but at this point I think we're right where we need to be."

Brenda Hamel, manager of Smokey's Discount Cigarettes in Taylorsville, said sales at her shop have dropped significantly, but she doesn't think people are quitting.

"It really, really hurt us bad, but what we found out is a lot of people, instead of buying their cigarettes in Utah, they're just going elsewhere," Hamel said. "They're not really quitting. I don't see people quitting at all."

She said customers, especially in the summer, will drive to Wyoming or Idaho, which have lower cigarette taxes, or they will start smoking cheaper brands to save money.

There is some evidence that is happening. Wyoming distributes a portion of the cigarette tax collected to the towns where the sales are made. For the first 10 months Utah's tax has been in effect, Evanston, Wyo., has seen its distribution increase by nearly 20 percent as a result of increased sales, even as the rest of the state has been relatively flat.

Evanston gets 4 cents of every 60 cents collected on a pack of smokes, and has seen its distribution increase by $16,428, meaning an increase of more than 410,700 packs sold.

But Gibbs said he thinks his customers have cut back, either buying fewer cigarettes or kicking the habit altogether, often because they can't afford it.

"We've had the increase in the tax," he said. "Plus the recession has knocked the s—- out of it. We're down 35 percent in sales. There's just nothing you can do."

Every day, Gibbs said, customers come in with nickels and dimes and pennies, short change and asking to pay him back.

Gibbs hasn't finished in the black since 2009, losing between $5,000 and $10,000 a year.

And he doesn't see it picking back up. He sees his grandson and his friends who are told all through school that they shouldn't smoke, and by the time they're old enough they won't pick it up.

"It's a slowly dying business," Gibbs said. "It is."