Citing stockpiling, some say it's too early to tell whether people are quitting
Cigarette sales are down nearly 22 percent since a $1-a-pack tax hike went into effect six months ago, prompting applause from anti-smoking advocates.
Others caution that it's too early to tell whether the sales dip means people are quitting. They say stockpiling before the tax increase and cross-border and Internet sales could be giving a false impression.
![]()
But even the tobacco industry says that such a large tax increase - from 41 cents to $1.41, bringing the cost of a pack to as much as $5 - inevitably will affect sales.
"We said all along when we were opposing the tax that it was extremely likely there would be some impact on volume," said John Singleton, a spokesman for R.J. Reynolds Tobacco Co.
The state sold about 484,000 tax stamps, which must be affixed to every pack, during the first half of 2007. During the same period last year, about 620,000 stamps were sold.
As expected, revenue from the tobacco tax has nearly tripled. It brought $727.3 million into state coffers compared with $242.8 million in the first half of 2006.
"Everything we predicted would happen is happening. Consumption has gone down as expected, and, just as importantly, significant new revenue has been generated to fund property tax relief," said James Gray with the Austin office of the American Cancer Society.
Gray said the key benefit to making it more expensive to smoke won't show up in the current numbers.
"This is all about stopping kids from ever starting to smoke," he said. "Based on that dollar increase, we will stop 280,000 kids alive today from ever starting."
But tax revenue, which grew at a greater pace in the second quarter, shows that some smokers could be adjusting to the sticker shock.
"The price isn't scaring people away the way they thought it might," said Dick Lavine, a tax analyst with the Center for Public Policy Priorities. "It shows how addictive cigarettes are."
Doug DuBois with the Texas Petroleum Marketers and Convenience Store Association said a survey of member stores showed cigarette sales down about 15 percent.
Anti-smoking advocates are encouraged the sales drop signals that people are quitting. Forty-two percent of people who called a state-funded smoking cessation hot line in January said the higher tax prompted their call.
Other explanations for the lower sales could be smokers crossing state or even national borders or turning to the Internet to buy cheaper cigarettes. Convenience stores in Louisiana, where the tax is only 36 cents a pack, have done a brisk business since January, and DuBois said stores in the Rio Grande Valley have seen the biggest declines in sales.
Stockpiling may skew stats
Tax analysts say it's difficult to measure the initial effect of tax hikes on people's habits because so many smokers stock up in advance of an increase. Sales were up 27 percent in the last quarter of 2006, said Dale Craymer, chief economist with Texas Taxpayers and Research Association, a business group that tracks state tax policy.
"It's really hard to get a handle on what the hit on consumption is going to be immediately after the tax hike takes effect precisely because folks tend to have stockpiled," Craymer said. "Over a longer period of time, we'll tend to see fewer smokers or smokers smoking less."
The tax also was raised on chewing tobacco, but cigars were spared. The tobacco taxes were part of a legislative package enacted by lawmakers in 2006 to fund property tax relief.
Texas now has the 16th highest cigarette tax in the nation and is above the average of $1.07, according to the Campaign for Tobacco-Free Kids.
Neva Alejandro of Uvalde is among the 18 percent of Texans who smoke. The 23-year-old nanny said she started smoking when she was still a minor and buys about two packs a week at prices ranging from $4.21 to $5.
While in Houston for a funeral last week, she bought cigarettes at Hollywood Food and Cigar on Westheimer in the Montrose area.
Alejandro doesn't like the higher price she pays for cigarettes but said it hasn't prompted her to try and kick the habit.
"If that's what they were going for by hiking it up, it was a failed effort," she said. "It would have to get really high up for me to stop, $7 or $8 a pack."
Legislative fiscal analysis of the tax hike showed that revenue would grow through fiscal 2009 and then start to slowly decline.
Inspectors with the comptroller's office are watching for sales moving underground.
"We haven't seen much of an increase in illegal cigarette or cigarette stamp sales during our inspections since Jan. 1," said R.J. DeSilva, a spokesman for Comptroller Susan Combs. "But it's something that we continue to keep a close eye on."
Internet sellers are supposed to obtain tax stamps and affix them before shipping cigarettes. The federal Jenkins Act requires the sellers to report to taxing authorities the names and addresses of customers who buy untaxed cigarettes.
Oklahoma, which saw Internet sales of untaxed cigarettes rise after that state's cigarette tax went from 23 cents to $1.03 in 2005, has billed the buyers for hundreds of thousands of dollars in uncollected taxes.
"We want to get the word out to taxpayers that although they may think they are getting a better deal on cigarettes by purchasing online, they cannot avoid the taxes due," said Paula Ross, a spokeswoman for the Oklahoma Tax Commission.
Marketing maneuvers
Cigarette companies follow tax hikes with increased marketing and discounting, said Carter Headrick with the Campaign for Tobacco-Free Kids.
"There's definitely a strategy of ramping up discounting when a tax hike goes into effect," he said.
One recent direct marketing effort was aimed at young adult smokers. A bright blue box contained an elaborately packaged set of four $1.75 coupons for Camel cigarettes with a booklet with pictures of rock concerts and drawings of cigarette packs entwined by flowers.
R.J. Reynolds' Singleton declined to discuss "proprietary" marketing efforts but said restrictions on billboards and promotional giveaways that were part of state tobacco settlements have led the industry to turn to direct mail. "We have given up a lot of opportunities to talk about the attributes of our products," he said. Enditem
