Smokers stock up on cigarettes to avoid tax hike

Juneau braces for bar-restaurant ban to take effect Jan. 2

Posted: Thursday, December 30, 2004

Customers at Lucky Raven Tobacco in Soldotna are stocking up on cigarettes to avoid a state tax rate increase.

Smokers in Juneau are starting to migrate from restaurants with bars to plain old bars, to avoid a city ban on smoking in the former type of establishment, bartenders said.

Those two laws, one state and one local, will affect smokers in 2005. The state tax starts on New Year's Day. The smoking ban begins Jan. 2.

The tax hike is expected to generate an additional $20 million for the state. Gov. Frank Murkowski sponsored the legislation.

Jack Dean, cashier at Lucky Raven Tobacco, said customers are purchasing up to four times the amount of cigarettes they usually buy.

Mike Patterson, owner of Lucky Raven, said usually when tobacco taxes increase, it hurts businesses. He believes customers will find ways to avoid it, such as buying them online. He also expects a sales increase in cigarette rolling products and cigars, which are not affected by the tax.

Patterson said he thinks this could lead to a decrease in tax revenue, which would be counterproductive.

A pack of cigarettes has been taxed by the state at $1 since October 1997. Lawmakers voted to gradually double the tax. A 60-cent tax hike on each pack of cigarettes will go into effect in January. The tax will go up 20 cents more in 2006 and another 20 cents in 2007.

Not everyone has heard of the tax hike. Mark Rackley, smoking outside Merchants Wharf in Juneau on Wednesday evening, said he didn't know about the increase but it wouldn't affect his use of cigarettes. Rackley said he smokes only occasionally.

Todd Maclay, a bartender at Hangar on the Wharf in Juneau, said he hasn't heard customers talking about the tax increase. But he has heard from customers who are looking for a place to drink and smoke.

A new Juneau ordinance bans smoking in restaurant bars, such as the Hangar. Eventually, in 2008, smoking will be prohibited in all of the city's bars.

"My regulars are starting to gravitate to places they can smoke," Maclay said Wednesday. "Nobody's quit smoking because of the smoking ban."

The Hangar's bartenders estimate that 40 percent to 50 percent of their regular customers smoke. Smokers aren't going to want to step outside and smoke in bad weather, he said.

Right now, the state takes in about $46 million each year from the tax, said Johanna Bales, program manager for tobacco tax for the state of Alaska. Seventy-six percent of the tax is earmarked for the school fund, which is dedicated to school construction. The rest goes to the state's general fund.

Department of Revenue officials said the last time the tobacco tax was raised in 1997, they lost about $7 million the first year due to stockpiling.

The entire amount of revenue generated from the increase will be for the state's general fund, she said. Almost 9 percent of that money will go toward the Tobacco Use Education and Cessation fund, which is designed to help smokers stop.

Bales said the state pays out about $125 million each year for smoking-related illnesses.

• Juneau Empire reporter Eric Fry contributed to this story.

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