Written by Puff Staff

Wednesday, 21 July 2010

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cignews1 As always, the cigar industry is full of news. Today's theme is taxes. We will discuss how increased taxes are killing off cigar shops in two states, and how one decided to remain tax-free. Keep reading to find out which states we are talking about, and if you will be affected.

New York's Increasing Taxes Hurting Businesses

New York continues to raise its tax rates on tobacco products, and the negative effects on local businesses are starting to kick in. It was recently announced that the state would increase its tax on Other Tobacco Products (OTP) to 75 percent of the wholesale price. The new rate marks a significant jump from the current rate of 46 percent, and will be enacted beginning on August 1, 2010. The rate increase is said to be necessary to help bandage a state budget deficit of over $9 billion. While it's intended to help New York's budget problems, it is also destroying many local businesses who rely on tobacco products to make a living.

One example of the negative effects caused by ballooning taxes is the Uptown Cigar Store in Kingston, New York. Michelle Tuchman, Uptown's owner, decided to close shop and move to Florida after the tax announcement was made. With such high taxes, Tuchman noted that it would become nearly impossible for New York shop owners to compete with neighboring states and online sources that can offer lower prices to customers due to tax advantages.


For instance, nearby Pennsylvania does not tax cigars, New Jersey's tax rate on the products is 30 percent, and many online retailers allow customers to bypass paying local taxes. All a New York resident has to do to get cheaper cigars is gas up their car, pay some tolls, and take a short trip out of state to get what they want. Even better, a person can order cigars on their computer from the comfort of their home. Needless to say, when you combine the cheaper alternatives with a tax rate that continues to rise, many New York retailers face the similar decision like Tuchman of having to close up shop and move.

When Tuchman started her business in 1996, New York's tax rate on cigar products was only 20 percent, a reasonable figure. It's hard to believe that it could have spiked all the way to 75 percent in just 13 years, but it seems as if it will have the opposite effect that the state intended. By making it nearly impossible for its local retailers to be profitable, New York is forcing many owners and customers to take their business elsewhere. This not only kills the local economy, but it also will cut into the tax revenue the state had hoped for, leaving the budget unfixed and many residents out in the cold. One has to wonder when the next hike will take place, as the proposed tax rate was originally 90 percent.

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