New Law Gives Tobacco Retailers Extra $4 Million
New Law Gives Tobacco Retailers Extra $4 Million
South Carolina tobacco wholesalers will pocket an additional $4 million to collect and process the 50-cent-a-pack state cigarette tax increase that takes effect Thursday.
The money is from a 3.5 percent incentive given to retailers to collect and report tax collections to the state Department of Revenue by certain deadlines. Currently, tobacco wholesalers receive about $800,000 a year to process discount cigarette sales, according to state budget data. That total will jump to an estimated $4.8 million a sixfold increase once the state starts collecting a bigger tax.
House Majority Leader Kenny Bingham, R-Lexington, said he and other lawmakers thought the incentive only applied to the original 7-cent-a-pack cigarette tax. Bingham opposed the idea of cigarette wholesalers profiting from the increased tax when their responsibilities have remain virtually unchanged.
"It is not to give them a windfall," Bingham said. "We will deal with that in January," when the Legislature opens a new session. Bingham said little was said of the incentive during the debate, which focused more on how to spend the money the new tax would generate. "I, personally, did not know anything about that issue until the debate was over," Bingham said. According to state Department of Revenue data, more than 500 cigarette wholesalers are licensed in the state.
Spokeswoman Adrienne Fairwell said the agency does not know how many wholesalers actively collect the incentive. The issue has caused confusion among some state officials, who did not realize that cigarette wholesalers would be paid an increased incentive based on the new, higher cigarette tax. But the incentive is similar to those paid other businesses, and wholesalers said cutting or eliminating the incentive would make it more difficult for them to remain in business.
The cigarette tax will raise an estimated $135 million a year, with $5 million, each, going to smoking cessation and the Hollings Cancer Center. The remaining money will go to help pay for state health care programs.
Tom Jackson, owner of Palmetto Candy and Tobacco in the Vista, said the incentive is not a windfall. Jackson said he must pay the tax upfront now an additional $5 a carton and the incentive is a way to assist the businesses that facilitate state tax collections. "I'm tying up money," Jackson said of paying the tax before he can recoup it through cigarette sales. "I'm going to have to make more money just to maintain what I'm doing." The state awards incentives to other wholesalers, Fairwell said, including 1 percent to liquor wholesalers and 2 percent for beer and wine wholesalers.
Fairwell did not know why cigarette wholesalers receive 3.5 percent, which was put in place in 1996 when the state eliminated tax stamps on cigarette packages. Jackson said he has had to hire employees to keep track of the Virginia cigarette tax. In addition, the company now must file a new report regularly with the S.C. attorney general's office on which cigarette brands are complying with the state's tobacco settlement or risk a fine.
"Somebody saw this and thinks the wholesalers are getting a windfall for not doing anything," Jackson said, arguing against lowering the incentive. "I'm happy with the bill that came out. It's a fair bill."
State Sen. Thomas Alexander said he was aware of the incentive, but the delicate politics involved in passing the cigarette tax after a nearly decade-long debate made lawmakers reluctant to adjust it. Changing the incentive rate, Alexander, R-Oconee, said, likely would have upset the coalition that narrowly overturned Gov. Mark Sanford's veto.
"We would have made the mountain we had to climb even higher," Alexander said, adding he might listen to reducing the rate next year to keep it in line with other incentives.
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