N.H. Cigarette Tax Cut Failing To Boost Sales

New Hampshire's reduced cigarette tax, implemented in June, has failed to boost revenue through increased sales during the first four months of the fiscal year, according to a Nashua Telegraph report.

During this time period, the state collected $77.5 million, which is $3.5 million or 4.3 percent less than legislative budget writers had predicted. Last fiscal year, New Hampshire collected $84 million during the first four months.

The New Hampshire Legislature cut the state's cigarette tax by 10 cents down to $1.58 per pack in June, following years of the New Hampshire Grocers Association's claims that a cut would boost sales. Economists hired by the grocers predicted an increase of $13 million in revenue, while economists working for anti-tobacco groups predicted a decline of $9 million, according to the report.

Last month, the state saw an especially deep plunge as it collected only $16.4 million in cigarette taxes, down 14 percent from the monthly pace.

When the tax cut first took effect, it was difficult to determine whether it had a negative effect on revenue, or if retailers were simply buying bonds for wholesale cheap cigarettes instead of paying in cash. But now the conclusion is clear, according to Administrative Services Commissioner Linda Hodgdon. "There's no arguing with the numbers, and they are pretty firm right now," she said.

From June through October, the state issued 55.7 million tax stamps for cigarette packs, compared to 57 million tax stamps during the same time period last year. Tobacco sales in New Hampshire have gone down steadily as more people quit smoking cigarettes; five years ago, 71.5 million tax stamps were issued during the June-October window.

Rep. Susan Almy (D-Lebanon) criticized the tax cut, saying the state should assist people in quitting smoking cigarettes, not encourage them to purchase more. "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," said Almy 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 online cigarettes cheaper."

Overall, New Hampshire has taken in $10.9 million in revenue over projections, according to the report.

› Read More

Details Of Tobacco Bond Sales

Minnesota finance officials are preparing to sell the cheap cigarette online bonds that were part of the state budget solution, but questions remain about the details of the sale, the amount of money the bonds will raise and even the legality of one version of the bonds.

The bonds represent $640 million of the agreement that erased Minnesota's $5 billion deficit and ended the state government shutdown.

Many key people involved in the cigarettes bond sale are reluctant to discuss it. Minnesota Management and Budget, the agency charged with selling the state's right to future tobacco settlement revenue, declined repeated interview requests. Gov. Mark Dayton and Republican legislative leaders don't offer details about the bonds, and neither side claims ownership of that part of the budget deal. Although Dayton signed the bill, he said his proposed income tax increase on top earners would have been a better option. He blames the GOP for the tobacco bonds.

"That's what the Legislature insisted on, the Republican leadership," Dayton said.

The bonds are based on future payments the state is due to receive from tobacco companies as part of a 1998 lawsuit settlement. Dayton said he's concerned about the costs associated with the bonds.

"The need for another $750 million of debt financing by the state is not going to be good for the state's financial ratings," Dayton said.

"If it hadn't been for those tobacco bonds," Dayton speculates, "I don't think the rating agencies would have reduced our credit rating, and that raises the cost of borrowing. It also makes it more difficult to place our bond sales."

At least 20 other states have already sold similar bonds.

Senator Julianne Ortman, R-Chanhassen, the chair of the Senate tax committee, voted for the bill. But she blames Dayton for the tobacco bonds.

"It would never have been my choice to raise $640 million in this way. I think the governor has made this choice," Ortman said.

Ortman said she can accept the sale because of the experience of other states. Another reason is that Minnesota's tobacco payments have been shrinking due to fewer people smoking cigarettes.

"They bring in about $150 million to $160 million now a year when they used to bring in about $200 million," Ortman said.

Since payments are decreasing each year, Ortman said it makes more sense to sell them off as bonds and use the proceeds for emergencies.

The new law allows the state two options for the sale. Securitization bonds are backed only by the future tobacco revenue. Appropriation bonds are less costly and would be secured by future general fund revenue. They would also require the state to first file a lawsuit seeking a validation from the Minnesota Supreme Court.

Attorney General Lori Swanson, who helped write the law, has raised concerns about the constitutionality of tobacco appropriation bonds from the time they were first suggested by Gov. Tim Pawlenty in 2009. Those bonds could tie the hands of future legislators, Swanson said.

"Under tobacco appropriation bonds, essentially what the state is doing is not only cashing in its future payments and selling them to investors, but the state Legislature is saying if the tobacco industry doesn't perform as contemplated that the state of Minnesota will stand behind the obligations and essentially back them up."

Swanson said MMB is evaluating whether to sell appropriation bonds or the less risky securitization bonds. The agency could use the securitization bond option right away or wait until a court ruling comes on appropriations bonds, she said.

MMB officials last month provided documentation about the anticipated bond sale process. They expect the bonds to be sold in two series: one issue this fall using the securitization approach, and a second in 2012.

› Read More

Woman Suit Against Cigarette Maker

A federal judge has denied R.J. Reynolds' motion for a new trial in the case of a Norwich woman who won a $28 million judgment against the makers of the menthol cheap cigarettes she smoked for 25 years.

Barbara Izzarelli started smoking cigarettes Salem King cigarettes when she was 12 years old. She was diagnosed and treated for cancer of the larynx at age 36. A Connecticut jury determined in May 2010 that the discount cigarette online company was 58 percent responsible for her injuries and that Izzarelli was 42 percent responsible for her injuries.

The jury awarded her $12 million, but Judge Stefan R. Underhill added nearly $16 million in interest to the award based on a state law that holds buy cigarettes companies liable for interest if they refuse reasonable settlement offers while a case is pending. The interest was calculated from 1999, when the lawsuit began. Izzarell's attorney, David Golub of Stamford, said the plaintiffs had offered to settle for $400,000 in 2001.

In denying the cigarettes online company's motion a new trial, the judge found that the evidence at trial was sufficient to support the jury determination that Salems were unreasonably dangerous and that R.J. Reynolds could have made the product less addictive and with fewer carcinogens.

Underhill wrote in a decision issued last week that he disagrees with the company's claim that a reasonable jury would have been compelled to accept R.J. Reynolds' argument that Salem Kings were not unreasonably dangerous under the ordinary consumer expectation test simply because all cheap cigarette online contain nicotine and carcinogens.

› Read More

Cigarette Store Owner Gets 6 Years

The owner of a chain of south suburban cheap cigarettes shops was sentenced to more than six years in prison for hiding and failing to report more than $60 million in cash receipts from his business.

Abbas Ghaddar, 43, was also ordered to pay more than $5.45 million in back taxes for the scheme that helped fund his lavish lifestyle in Lebanon, where he built a luxurious home, purchased a farm worth hundreds of thousands of dollars and became the successful owner of a soccer club, the U.S. attorney’s office said.

Receipts from Ghaddar’s Tobacco House Inc. stores showed that they generated more than $102 million in gross revenues, at least $60 million of which were cash receipts.

But Ghaddar deposited less than 1 percent of that into his corporate bank accounts and declared little, if any, on his corporate tax returns, prosecutors said. He also filed false federal income tax returns from 2003-05; failed to file returns from 2006-08; and filed false sales tax returns with the state from 2002-09. Ghaddar pleaded guilty in June.

› Read More

Vermont Senate OKs Tax

The Senate wrapped up two days of stop-and-start deliberations on a $24.3 million tax package Friday with a 20-8 vote of support, followed quickly by a nearly unanimous vote for a $4.68 billion budget to operate state government next year.

The tax bill, which the Senate had to pass to fund its spending plan, included a 53-cent cigarette-tax increase, a compromise between the Senate Finance Committee's proposed $1 increase and Gov. Peter Shumlin's demand for no increase at all.

Senators rejected an amendment to raise income-tax rates on the two highest tax brackets for three years in order to raise an additional $16.7 million a year, but the lengthy debate Friday morning showed that more than just seven senators likely would support an income-tax increase in the future.

The cigarette tax compromise turned out to be unexpectedly difficult to achieve because Shumlin and Senate President Pro Tempore John Campbell, D-Windsor, took their differences to the Senate floor for a vote Thursday. Shumlin won a narrow 16-14 victory on a motion to delete the dollar increase, but he failed to persuade senators to go along with his alternative: a tax on dental services.

The Senate voted Friday to replace the proposed $1 increase in the cigarette tax with the 53-cent increase and a bigger tax on medical and dental insurance claims.

The Shumlin administration's dental-service tax is off the table. The final version of the tax package, which the House and Senate begin to negotiate next week, almost certainly will include an increase in the cigarette tax -- despite the governor's objections. The House proposed a 27-cent increase.

Sen. Anthony Pollina, D/P-Washington, suggested the $24.3 million revenue package wasn't enough. He argued the budget, which only he had voted against when it came up for preliminary approval, made too many cuts -- $38 million -- to important programs.

He said Vermont's wealthiest residents -- about 4,000 tax filers -- should be asked to share their resources with their neighbors in need. He reminded senators that people in the highest tax brackets benefited from significant tax savings as a result of Congress' decision to extend federal tax cuts.

"We talk a lot about values in this chamber," Pollina said. "There is no better reflection of our values than how we raise and spend Vermonters' money."

Sen. Richard Sears, D-Bennington, disputed Pollina's description of the harshness of the Senate's budget. Sears, who helped write the budget as a member of the Appropriations Committee, noted, for example, that only $1 million had been cut from a proposed appropriation of $200 million for the Choices for Care program, which helps keep elderly Vermonters in their homes rather than having to enter nursing homes.

"I'm dumbfounded by some of the conversation about the budget," Sears said.

Senate Finance Chairwoman Ann Cummings, D-Washington, made the case against supporting an income tax increase now.

"I would like nothing better than to vote for this amendment," she said. "I think I will -- but not until next year."

She said the Legislature likely would have to consider an income-tax increase and revisions to spending once it become clear how much Congress will shrink federal funding in order to bring down the deficit.

Sen. Randy Brock, R-Franklin, opposed the income-tax increase, too, saying people in the state's top tax brackets include small businesses. He called it poor policy to raise taxes on job-generators when the state is trying to expand employment opportunities and revitalize the economy.

Democrats split on the income-tax amendment, with seven supporting an increase now and 15 opposed. The Senate's seven Republicans stood together in opposition.

Senators made several other tweaks to the tax package before the final vote.

Lt. Gov. Phil Scott had to cast his first tie-breaking vote on one amendment that would extend an education property tax exemption to three nonprofit skating rinks used by public schools. He tipped the balance in favor after a 14-14 tie.

"These skating rinks provide for the physical education of Vermont students," Scott said in a statement released after his vote. "Without them, Vermont's schools would not have the facilities to support their hockey teams. This exemption reduces the financial burden on those rinks. I was proud to support Vermont schools with my tie-breaking vote today."

Senators seemed to have no energy left when it came time for final debate on the budget.

Sen. Vincent Illuzzi, R-Essex/Orleans, credited Appropriations Chairwoman Jane Kitchel, D-Caledonia, with leading the Senate to a spending plan that addressed as many needs as possible within significant financial constrictions.

"It was an open-door process, and everything was on the table," Illuzzi said. "The litmus test has been there have been only a few technical amendments offered."

› Read More