Tobacco Shop Owner Worries Over Tax Increase

Source from:  Pontiac Daily Leader 06/04/2012

Pontiac, Ill. - Customers at Leo's Tobacco shop, 1714 W. Reynolds St., have been giving owner Leo Melak an earful since the Illinois legislature approved a $1 per pack tax increase Tuesday. Customers, Melak said, "are really upset about it. They feel like smokers are being singled out." And if smokers are being singled out, so is Melak's business. Not only does the increase apply to cigarettes, but to all tobacco products sold in Illinois. Melak said many retailers are predicting a 20 percent decline in tobacco products sold as smokers either quit - or buy their cigarettes elsewhere. Two neighboring states, Indiana and Kentucky, have lower tobacco taxes. "I am definitely worried about it because the tobacco stores losing 20 percent of their business will deeply affect them. It will affect not only the retailer, but also the consumers. It's a tough economy right now and everything is getting expensive. I think most people are going to quit or find other sources to get their tobacco needs." However, being centrally located within the state may have a slight advantage, he added. "Any county that is near the state line, whether it be Indiana or Kentucky, it will definitely affect them. If you are quite far, it might not, but it's still a very scary situation right now." The legislation is awaiting Gov. Pat Quinn's signature, which is expected as he supports the measure, as he called for the tax hike as part of his plan to close a $2.7 billion hole in the state's Medicaid budget. The tax hike on cigarettes and other tobacco products, along with an assessment on hospitals to leverage more federal Medicaid money, will close $800 million of that gap. The cigarette tax increase is expected to go into effect June 24, while the increase on other tobacco products would become effective July 1. The measure passed by a 31-27 vote in the Illinois Senate, and passed the previous week in the House. No Senate Republicans, including Shane Cultra of Onarga and Bill Brady of Bloomington, supporting the measure. Many Republicans opposed the tax hike on the grounds that deeper cuts should have been made to Medicaid programs. Lawmakers last week approved a bill that is expected to save the state $1.6 billion through Medicaid program cuts and rate reductions to providers. "It's not so much we are trying to protect tobacco use, but rather the continuing pattern we see in the Senate of always looking for more revenue," said. Senate Minority Leader Christine Radogno Radogno also said tobacco use is more prevalent among lower-income people. "This is a very regressive tax," she said. Sen. Larry Bomke, R-Springfield, said he doesn't think tobacco taxes are a reliable source of revenue for the state, since tobacco tax hikes are, in part, supposed to discourage smoking. "I think those folks have been hit heavy enough," Bomke said. "We continue to go back to the same well and depend on a tax that we hope won't be there in the future." D emocratic Sen. John Sullivan of Rushville said his district borders Missouri, which has the lowest cigarette tax in the country at 17 cents per pack. With the tax increase, the Illinois rate will be $1.98 a pack. "There's already a huge number of people who will continue to cross over to Missouri and buy cigarettes, and while they're there they will buy gas, groceries and other goods," Sullivan said. "Quincy businesses have certainly expressed their concern." Bill Fleischli, vice president of the Illinois Association of Convenience Stores, said a study shows the increase will cost the average store $16,000 in tobacco sales. "The tax will put facilities out of business," he said. "It will cost jobs." Sen. Jeff Schoenberg, D-Evanston, the bill's sponsor, responded that convenience store employees, many of whom aren't covered by employer health insurance, might need the Medicaid programs the tax will help finance. Schoenberg and other supporters also argued the cigarette tax hike will lead 60,000 smokers to drop the habit and cause 80,000 children not to start because of the expense. State officials estimate the Medicaid program spends $1.5 billion annually to treat tobacco-related illnesses. Senate Bill 2194 also doubles state taxes on the wholesale price of other tobacco products, like cigars and pipe tobacco. The Department of Revenue said that, since that tax is applied to the wholesale price, it is difficult to determine how it will affect retail prices. The tobacco taxes together are expected to bring in $350 million, even if experts are correct that thousands of people will give up smoking as a result. Tobacco tax money will be matched with federal funds to cover $700 million in Medicaid expenses. The bill also contains a tax on hospitals that will be used to leverage additional federal Medicaid funds, covering another $100 million in state expenses. The final component of the bill spells out in greater detail how non-profit hospitals can maintain their property tax exemptions by providing charity care. The issue has been clouded since the state Supreme Court decision found that a hospital was not providing enough charitable care to qualify for the exemption. The bill also creates a sales tax exemption for non-profit groups that meet charity care guidelines and an income tax exemption for for-profit hospitals that meet charity care guidelines.Enditem