Smokers continue coughing up extra change after tax hike

HELENA - Montana's month-old tobacco tax increase gave retailers early headaches and sparked complaints from surprised customers, but hasn't kept smokers from lighting up, tobacco dealers said.

And although some say they're still wary of increases in smuggling and illegal Internet sales, state officials aren't particularly concerned about a rise in bootlegging.

The state tax on a pack of cigarettes jumped from 18 cents to 70 cents on May 1, just hours after Gov. Judy Martz signed it into law.

Besides cigarettes, the tax on chewing tobacco increased to 35 cents per ounce and the tax rate on other tobacco products - like pipe tobacco and cigars - doubled to 25 percent.

But Neil Peterson with the state Revenue Department said the change isn't likely to spur smuggling in Montana, contrary to warnings of those opposed to the tax increase.

Unlike Washington state, which saw a jump in smuggling after increasing its tobacco taxes, Montana has a more sparse population, fewer large cities and no international port, Peterson said.

Officials also expect recent tobacco-tax increases in neighboring states to confine smuggling to occasional trips across state borders by bargain hunters.

However, that possibility still worries some retailers.

In Billings, Tobacco Row owner Bob Pribyl said he's heard many customers say they're ready to drive south to buy cheaper smokes. Pribyl said he thinks smuggling eventually will affect business.

''I feel we're going see a lot of black market in the state,'' Pribyl said. ''I can go on the Internet right now and order any kind of cigarettes you want for less than we have them. And they'll be at your door in two days.''

Ronna Christman, lobbyist for a statewide organization of convenience stores, said bootlegging and tax-free Internet sales are bound to climb.

''It's going to be a huge issue. Regulators don't want to face it, they don't want to believe it. But it's real,'' Christman said.

Peterson said the tax increase is too fresh to generate reliable revenue numbers, but added that he will be interested to see if sales climb on some American Indian reservations.

Five of the state's seven reservations follow state guidelines on how many packs of cigarettes they can sell tax-free, but sales there rarely approach the limits, Peterson said.

Dorothy Clinkenbeard, owner of Joe's Smoke Ring in Evaro, said she expected more sales to tribal members after the price increase because of people asking Indian friends to buy cheaper cigarettes for them.

But those numbers, like most tobacco sales at her store, have stayed fairly stable, she said.

''I think there's a few of the people that were committed to going ahead and quitting and it gave them a nudge,'' but the tax increase hasn't hurt business, Clinkenbeard said.

At Smoker Friendly in Missoula, manager Danielle Pielaet said sales have not dropped off as she expected after the mad rush on cartons on the eve of the tax increase.

The biggest change she's seen is higher sales of discount brands like ''Hi-Val,'' which sell for about $10 less per carton than premium brands.

''Those are starting to fly off the shelves,'' Pielaet said. ''We're selling the same amount of cartons, it's just the brands we're selling that's changed.''

Bill Sorum, owner of Tobacco Emporium in Helena, said his customers have started buying more discount brands and roll-your-own cigarettes.

Sorum said some of his customers also stocked up on cigarettes just before the price jumped, but those who didn't pay attention to the Legislature were shocked when they came to his store in May and noticed the higher tax.

''You go from $1.80 to seven bucks a carton, that's a hell of a kick,'' Sorum said.

But like other tobacco dealers, Sorum thinks the price hike won't be enough to make smokers drop the habit.

''They might be more conservative or go to the cheaper end, but they're going to smoke,'' Sorum said.

The tobacco-tax increase was part of Senate Bill 407, which also increased taxes on hotel rooms and imposed a new tax on rental cars while giving income-tax relief.

The bill was a central part of the state Legislature's solution for a $230 million budget shortage that dominated the 2003 session.

Martz has said signing the bill was one of her biggest disappointments during the Legislature, but the increase was popular with Montanans.

In a recent poll for the Lee newspapers, voters overwhelmingly supported the decision - 58 percent said they support the increase in cigarette taxes, compared with 36 percent opposed.

Peterson said the tax increase's quick implementation made for some ''heartache'' among retailers, but complaints have dropped after a month.

Peterson said the agency also fielded early complaints that some retailers weren't charging the new minimum price for cigarettes - a markup of $6.05 per carton - but said that has died down as well.

''It went fairly painless given the short notice,'' Peterson said.