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Governor's proposal to raise tobacco sales tax ruffles sellers

Monday - 1/30/2012, 12:33pm  ET

Gov. Martin O'Malley's proposal to raise taxes on tobacco products is causing a lot of huffing and puffing among local sellers.

O'Malley's proposed $35.9 billion budget for fiscal 2013 would raise the 15 percent excise tax on cigars, smokeless tobacco and other noncigarette tobacco items to 70 percent. The proposed tax increase would raise the price of a $1.49 cigar to about $2.20.

Budget analysts project the increase will bring the state an extra $20 million next year, according to published reports.

The governor's proposal isn't sitting well with local retailers.

New taxes on tobacco products will drive more people to neighboring states for their supplies, said Bob Burgess, owner of JBK Associates in Mount Airy.

"A lot of my customers go next door (to Virginia and West Virginia), and I tell them I don't blame them," Burgess said. He said Maryland could certainly use the money that added taxes will siphon off to other states.

Retailers have to pay upfront for their tobacco supplies, said Joe Cohen, owner Classic Cigars & British Goodies on North Market Street in Frederick.

"People who roll tobacco do it because cigarettes are too expensive," Cohen said. "The bottom line is people who sell rolling tobacco or cigars will be hit."

When he was mayor of Baltimore, O'Malley would not ban smoking in the city's bars because he didn't want customers taking their money to more tolerant destinations. Now that he's governor, O'Malley is supporting measures to ban smoking in bars and restaurants across the state, Cohen said.

The International Premium Cigar & Pipe Retailers Association, which represents tobacco stores, is against the measure.

"There is a fundamental right in this country for the small businessmen and women we represent to sell a legal product at a fair profit without undue government interference," Bill Spann, CEO of the IPCPR, said in a statement.

"There is a similar fundamental right for American citizens of legal age to make an informed, conscious choice to enjoy these fine, artisan products."

Spann said those pushing for the tax increase are basing their case on what he called a misguided effort to prevent underage smoking.

In addition to the businesses and jobs that would be at stake with any tobacco tax increase, Spann said funds anticipated to be raised by such tax increases rarely reach their predicted levels and will simply cost the state jobs, tax revenue and business.

Maryland adults who buy cigars and other tobacco products will flee to the surrounding states where prices are lower due to state taxes which are half the Maryland rate, he said. Pennsylvania's tax on noncigarette tobacco products is zero, and in the District of Columbia, premium cigars are tax-exempt, Spann said.

Sen. David Brinkley called the governor's proposal "an ill-conceived idea" that is upsetting tobacco retailers.

"Here's why: He's looking at it possibly to get people to stop using tobacco; however, the Internet provides a way for people to get it. The state will lose out on revenue and this tax will put these retailers out of business, and when a business closes, that's a financial loss to the state," Brinkley said.

One of the complaints tobacco sellers have is that customers come in, buy a cigar and if they like it, they then go to another state or buy it more cheaply online, Brinkley said.

Sen. Ron Young also doesn't support a tax increase.

"I am not in support of tax increases in these economic times," Young said. "We have a serious budget issue if we are to balance the budget and reduce the structural deficit. As we move through the budget process, I will have to examine what comes before us and whatever other changes can be made before making any final decisions."

No action is expected on the governor's proposed budget until March.