Representative Andy Davis (R – Little Rock) has HB1565 to increase tax collections to fund a national cancer institute-designated cancer center in Arkansas. Having the center is a good goal but the measures to collect more taxes are of great concern.
HARMING RETAILERS IN BORDER CITIES
Most concerning is the harm the bill will do to retailers in cities bordering another state. The bill repeals tax exemptions for these retailers which were originally designed so the retailers can compete with retailers in border states.
Instead of repealing the border city exemptions, Arkansas should be trying to be competitive with the surrounding states by the high taxes on cigarettes, on all goods, and on gasoline and diesel, which was just increased again.
The Department of Finance and Administration projects in the first full year of the exemption repeal the state will collect an additional $3.3 million from border areas of the state.[i] …. That is if people don’t just drive across the border to purchase cigarettes and once there fill up on gasoline and shop at the Walmart in the other state since taxes are lower in the other state.
Representative Davis who is from Little Rock has no sympathy for retailers in our border cities.
GOVERNMENT MANDATED MINIMUM PRICING
Decades ago Democrats passed a law limiting how low a retailer can sell cigarettes. Currently the minimum price is an amount based on what the cigarettes cost the retailer, plus a cost of doing business which the state calculates as 7.5 % of what the cigarettes cost the retailer. In other words, the retailer must have at least a 7.5 % markup.
Conservatives say the government should not be in the business of setting a minimum price for any product. The retailer should have the power to determine how low his pricing should be, even if it is cigarettes.
Yet, instead of repealing the law, Republican Rep. Davis is proposing to increase the minimum price the retailer may sell cigarettes by setting the cost of doing business as 9.5%. The price increase is found in HB1565. Other Republicans have signed onto the bill!
Why arbitrarily increase the cost of cigarettes?
It is about collecting more taxes. A higher sales price means more tax money for the state. In addition to a tax imposed per pack of cigarettes, the state collects sales tax on cigarettes. A higher cost means more tax for the state. The Department of Finance and Administration says this mandatory two percent increase in the price of cigarettes will raise $1.15 million in new taxes.[ii]
State mandated minimum pricing is a liberal policy, and it is wrong.
YOU AREN’T SUPPOSED TO CARE
Most people don’t smoke and don’t like to smell cigarette smoke. So, politicians think you won’t care when they adopt liberal policies to set minimum prices or drive retailers in cities near our state borders out of business.
Most people would like to see Arkansas have a national cancer institute-designated cancer center. So, politicians think the use of the money will justify harming retailers in border areas and justify adopting liberal policies on minimum pricing.
HB1565 has already passed the House of Representatives and is in the Senate. Good goal but it is a bad bill.
[i] DFA Revenue Impact Statement:
$205,000 Gain in State Sales Tax Resulting from Border Zone Repeal — Increased retail cigarette
sales prices resulting from increased cigarette tax in Border Zone Areas. Total 6.5% State Sales Tax —
$205,000; General Revenue — $120,000; Special Revenues — $85,000 to Educational Adequacy;
Property Tax Relief Trust Fund; Conservation Tax; Highway Fund; State Central Services; and
Constitutional Officers. $70,000 Annual gain in city and county sales tax revenues.
Department of Finance and Administration Legislative Impact Statement
$3.1 Million Gain in Cigarette Taxes Resulting from Border Zone Repeal — Arkansas cigarette tax rate
would be collected in border zone areas. Total Cigarette Tax Revenue — $3.1 Million; General
Revenue — $2.95 Million; Special Revenue — $.1 Million to Aging/Adult Services Fund; Meals on
Wheels; AR Prostate Cancer Foundation; Breast Cancer Control Fund; Breast Cancer Research Fund;
and UAMS Center Fund.
[ii] DFA Revenue Impact Statement:
$1.15 Million Gain in State Sales Tax — Increased retail cigarette prices resulting from increased cost
of doing business by the retailer from seven and one-half percent (7.5%) to nine and one-half percent
(9.5%) of the basic cost of cigarettes to the retailer. Increased average price per cigarette pack = $.12
applicable to 148,000,000 packs annually. Total 6.5% State Sales Tax — $1.325 Million; General
Revenue only — $775,000; Special Revenues — $240,000 to Educational Adequacy; Property Tax
Relief Trust Fund; Conservation Tax; Highway Fund; State Central Services; and Constitutional
Officers. $380,000 Annual gain in city and county sales tax revenues.