Distributor doubts tobacco tax revenue estimates

Sunday, January 2nd 2005, 4:33 pm
By: News On 6

OKLAHOMA CITY (AP) _ Revenue projections from Oklahoma's new tobacco tax could be inflated because of numerous exceptions in tribal tobacco compacts, a Sapulpa tobacco and grocery wholesaler says.

But Gov. Brad Henry's chief compact negotiator says officials considered those exceptions, as well as Internet sales, when figuring the impact of State Question 713 and related tribal tobacco compacts.

The new law that resulted in a net tax increase of 55 cents on a pack of cigarettes went into effect Saturday.

Rick Bahlinger, sales manager for Standard Distributing, said research shows that when a state raises the tax on cigarettes sold at retail locations, smokers look for either untaxed channels, like the Internet, or sources with lower taxes, such as tribal smoke shops.

He also believes convenience stores and other non-tribal retailers will lose customers to tribal smoke shops because of a disparity in the price on a carton of cigarettes.

``The state thinks they're going to get taxes they're not going to get, because more people will go to the tribal shops that don't have any tax increases, and they'll see almost no tax on those cigarettes,'' Bahlinger said.

State Finance Director Scott Meacham said many of the lower-exception tax rates for tribal sales will go away for tribes such as the Cherokees and Osages as soon as state officials and the Creek Nation agree on a new compact.

The Creeks are one of the state's major tribal sellers.

He said other lower tribal tax rates will end as old compacts expire and are replaced with agreements based on the higher tax.

Because the new compacts tend to refer to the proximity of other tribes' outlets and other factors, one compact can affect others.

Tribal smoke shops may pay any one of at least half a dozen tax levels, ranging from a few pennies to the full new tax hike, depending on their compact status.

Tribes that have signed new compacts will receive half of the tax increase back.

In general, outlets within 10 miles of another tribal shop or, in some situations, 20 miles of a state border will pay lower taxes.

Meacham said officials looked at the experience of 26 other states that have increased tobacco taxes to see how consumers reacted.

He said there tends to be some loss to cross-border and Internet sales at first, but that those losses decrease over time.

Meacham also said most cigarettes in Oklahoma are not sold at border locations.

``That's not where our population is,'' he said.

Regarding possible harm to non-tribal retailers, Meacham said the new compacts and elimination of the sales tax on tobacco are designed to close the gap on the current competitive disparity between tribal and non-tribal sellers.