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Storeowners revolt against cigarette tax

South Boston News / May 03, 2017
A proposal to tax the sale of cigarettes in South Hill to support the town budget ran into vociferous opposition from retailers and vendors who spoke out against the idea Friday at a Town Hall meeting.

Local convenience store owners sought to persuade members of council and town manager Kim Callis to drop the proposed 30 cent-per-pack tax, which officials estimate will generate about $150,000 in annual revenue.

Opponents countered that the tax would hurt their business and not generate any real revenue as consumers adjusted by making their cigarette purchases outside of South Hill town limits.

Callis, who has proposed levying the tax in the context of a $14.3 million general fund budget, previously calculated that the cost of the new tax would be about $110 annually for an average pack-a-day smoker.

Several local vendors told Callis on Friday that his projections were unrealistic. They said the tax would drive customers away to surrounding store locations that are not subject to the tax. Cigarettes are a large part of the convenience store business, Callis was told.

Speakers also suggested that he read a study by the Thomas Jefferson Institute, a conservative Virginia think tank, that examined the fiscal impact of cigarette taxes on localities. The study, released in late 2016, concluded that cigarette tax collections have been falling or remained flat since 2010, and that tax hikes, for the most part, raise local revenues by less than budget projections, and any such increase is often fleeting.

The study was conducted to see if so-called “sin taxes” such as excise taxes on cigarette sales truly produce more income for local governments.

Several people at Friday’s public hearing suggested that Callis should consider upping the local meals and lodging tax instead of taxing cigarettes.

Callis said he was well aware of the Thomas Jefferson Institute study, having read it several times. He added, “We take everything in the budget serious.” To generate the same amount of money, personal property taxes for the average person would have to increase by about $150 per year.

He acknowledged more money could come from an increase in the local meals and lodging tax. Right now, the meals and lodging tax generates $1.9 million in revenue for South Hill, according to Callis. A 1 percent increase would produce an additional $300,000.

While he did not dismiss the idea of increasing the meals and lodging tax, Callis said, “I would first need to discuss that possibility with those in the industry.”

“This [tax proposal] was not done in a vacuum,” Callis said, while recognizing the town’s historic ties to tobacco. “But times change.” South Hill must replace lost revenue sources to pay for its expanding budget, he added.

In the last few years South Hill has lost several large employers and jobs: the Peebles corporate headquarters was relocated to Texas, and International Veneer Company consolidated its operations at a facility in Pennsylvania.

In the aftermath, town officials have reached out to legislators and leaders in Richmond, hoping to bring new jobs to the area — without success, Callis explained. South Hill is even losing law enforcement personnel: four officers who’ve left for other agencies that are willing and able to pay for enhanced retirement benefits known as LEO.

Arguing that the town has managed its money wisely, shedding nearly 20 employees since 1984 while expanding services, Callis said South Hill is now facing major expenditures. Spending is set to increase $2.34 million in fiscal year 2018 over the current year’s spending. FY2018 starts July 1.

The need for more revenue could be exacerbated by actions taken at the state level. Lawmakers in Richmond are hinting at plans to eliminate the BPOL (Business Professional and Occupational License) tax, imposed by South Hill on a company’s gross receipts in the locality. South Hill could lose upwards of $750,000 annually if the BPOL tax is eliminated.

Among the expenditures that are driving spending increases next year are upgrades to the intersection of US 1 and Highway 138 near the new hospital, technology upgrades for the town’s record-keeping system, a new fire truck for the South Hill Volunteer Fire Department, upgrades to water and sewer systems, and new radios and equipment for town police to make it possible for them to communicate directly with other law enforcement agencies. South Hill also is looking into hiring a business and economic development officer who will be tasked with bringing industries, businesses and jobs to the community.

A few people wondered why the town was building a new public works facility at a former warehouse location on Danville Street if money is a problem. Callis replied that monies covering the construction of that facility were not coming from the general operating budget, but from an existing fund budget.

Bob Tanner, former head of Virginia Wholesalers Association, said other localities that have implemented a cigarette tax have burdened retailers by making them responsible for purchasing and applying local tax stamps. The stamps are adhesive labels that retailers purchase and apply to cigarette packs or cartons. Tanner said distributors have said they were not in a position to take on this responsibility.

Katherine Ward, the town’s finance director, said she’d already spoken with local distributors about having the stamp applied during packaging, at the same time and in the same manner as the state stamps. Retailers who do not work with a cigarette distributor, however, would need to purchase and affix the stamps. She showed those present a sample stamp designed for the town.

Despite these assurances — and Callis’ assertion that his research has uncovered few if any businesses that have been hurt by a cigarette tax — most said they would prefer either an increase in real estate or personal property taxes as an alternative to the cigarette tax.

Members of Town Council did not comment on the remarks of speakers at the public meeting. Council is expected to take up the budget at the next regular meeting on Monday, at 7 p.m. The town is required to pass a budget by the end of June to go into effect July 1.

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