How Lower Cig Taxes And Lackluster Sales Fit Into The Bigger Revenue Picture

Axolot / Flickr

Cigarette sales are down in New Hampshire, despite the recently lowered tax

By now, we imagine you’ve probably heard about the state’s $4 million revenue shortfall last month.  New Hampshire’s major media outlets have been reporting on the issue since last night, and they’ve tended to zero-in on the same thing:  Most of that lost revenue comes from lackluster cigarette sales.  And, of course, this point raises the question:  Was the Republican push to lower the cigarette tax by 10 cents last summer a bad idea?

Since there’s been so much number-heavy coverage on the issue between yesterday and today, we’ve decided to sift through it all so you won’t have to.

So without further ado…the highlights (or lowlights?) of October revenue.

Let’s start with the Associated Press coverage, as published by Bloomberg Business Week:

“Administrative Services Commissioner Linda Hodgdon said Wednesday that revenue is $4 million below estimates. She said the biggest disappointment was the tobacco tax which was $2.6 million behind projections for the month and now is $3.5 million behind for the year. The Legislature cut the tax 10 cents hoping to spur sales, but Hodgdon said sales are behind last year’s numbers.”

Kevin Landrigan of the Nashua Telegraph, meanwhile, offers a by-the-numbers approach:

“Through the first four months of the financial year, the tax brought in $77.5 million, which was $3.5 million or 4.3 percent less than legislative budget writers predicted.

The state took in $84 million during the first four months last year.

Last month alone, the picture was worse, as the tax took in $16.4 million or 14 percent off the monthly pace.”

So boiling all this down so far, since the legislature cut the cigarette tax from $1.68 to $1.58 a pack last July (the start of the fiscal year) cigarette revenues are:

• Down $2.6 million from October projections
• Down $3.5 million from projections for the first four months of the fiscal year
• Down $6.5 million from the first four months of the last fiscal year

But is this revenue shortfall really because the Republican-dominated Legislature voted to lower the cigarette tax?  Well…maybe not.  Here are some more numbers from Landrigan’s piece:

“The Lynch administration analyzed the sale of tobacco tax stamps that are affixed to each pack sold in New Hampshire.

The state issued 55.7 million tax stamps for cigarette packs from this past June through October.

Over the same period last year, 57 million tax stamps were bought.

Tobacco sales have been going down steadily in New Hampshire and other states as fewer people smoke.

The state sold 71.5 million tax stamps during the five-month window five years ago.”

So, depending on who you ask, the cigarette tax cut isn’t entirely to blame, thanks to a trend of declining cigarette sales–or the legislature should’ve realized cig sales have been going down for years, and cutting taxes will only axe revenue that much more.

Mike Demers / Flickr

Does a dime a pack really make a difference? Many Democrats say, "yes!"

One of the people Landrigan asked for his piece was a Democrat:

“Rep. Susan Almy, D-Lebanon, said the tax cut was counterproductive, as the state should be helping people quit smoking and not make cigarettes cheaper to buy.

‘Back in June when the state budget passed, Democrats warned cutting the cigarette tax by 10 cents a pack would have a negative effect on state revenue. The reduction was just a political ploy by the Republicans,” Almy said in a statement. “I think if you asked citizens around the state, they would agree that it wasn’t a good idea to make college more expensive and cigarettes cheaper.'”

Meanwhile, NHPR’s Dan Gorenstein managed to get in touch with a member of Republican leadership:

“GOP Majority Leader Representative D.J. Bettencourt said it’s too early to gauge the impact of reducing the tobacco tax.

‘My district is down in Salem. And I can tell you that many of the store owners are just now beginning to get out to their customers the fact that the tax cut has taken palce. And they are advertising very heavily. I think as the word spreads, it will work.’

Bettencourt points out that lawmakers included a so-called circuit breaker, meaning that if tobacco revenues fall short by the end of the fiscal year, the tax will go back up.”

Getting out of the realm of political he-said-she-said, let’s put all of this into the context of the larger revenue picture.  And for that, we’ll look at Tom Fahey’s coverage for the Union-Leader:

“The Department of Administrative Services reported that results were nearly 4 percent short of the budget goal last month, coming in at $106 million.

Through the first four months of the fiscal year, the total $498 million in revenues are $11 million, or 2.2 percent, ahead of the budget plan.”

In other words, even with the cigarette revenue shortfall, overall, the state’s still ahead of where it should be this time of year.  Meanwhile, it looks like other revenues are down as well:

“Another mainstay, liquor sales, are also off this year _ by 4 percent. Customer visits are up, but spending is down at liquor stores. The last weekend in October also suffered because of bad weather, the Liquor Commission said.

Business taxes came in 6 percent below plan last month, owing in large part to a fall-off in audit revenues. The state budget cut the number of auditors at the Department of Revenue Administration. In addition, those who remain on the job are tied up analyzing what DRA said is ‘an unusually high volume of requests for refunds.‘”

Both the Telegraph and Union-Leader stories note that October and November aren’t stellar revenue months for New Hampshire, anyway.  December, apparently, is the next big “benchmark.”

So here are the takeaways:

• Cigarette revenues are down from projections, both for the month of October and four months out.
• Liquor revenues and audit revenues are down as well, so this isn’t happening in a vacuum.
• Despite the shortfall for October, overall state revenue is still slightly ahead for the year.
• We’ll have a better idea of how the cigarette tax cut is shaping up after December.