Massachusetts gives big boost to NH advantage
Business has been a bit slow at Tobacco Empire on Route 28 in Salem for the past couple of years. Owner Eli Merheb recalls a time not long ago when he would sell 600 to 700 cartons of cigarettes a week, mostly to Massachusetts customers taking advantage of his location on the border.
Lately, those sales have been more like 300 to 400 cartons a week, but Merheb, like many other merchants in Southern New Hampshire, believes recent legislation by lawmakers on both sides of the border will provide a big boost.
It's a tale of two states, as the Massachusetts Legislature passed a budget that increases taxes on cigarettes by $1 a pack or $10 a carton, while New Hampshire's tax will stay at its current level until Aug. 1.
After that, it goes up 10 cents a pack.
And it's not only cigarette prices that could help bolster the New Hampshire advantage. Gasoline taxes will be going up three cents a gallon in Massachusetts, but held steady in New Hampshire. Business taxes are going up in Massachusetts, and down in New Hampshire.
The New Hampshire budget has been signed into law, while the Massachusetts budget awaits Gov. Deval Patrick's signature. If anything, he may demand even higher taxes on gasoline for transit system improvements, he told reporters on Monday.
"Right now, I can tell you the New Hampshire advantage is alive and well, and is particularly benefitting from the decisions made by our legislature and the legislatures of our surrounding states," said Greg Moore, New Hampshire director of Americans for Prosperity, which lobbied against proposed increases in the gasoline tax and cigarette tax.
Moore's group also supported efforts to double the state's research and development tax credit and extend exemptions to the Business Enterprise Tax.
"A new budget takes effect in New Hampshire that includes no new taxes, and which keeps business tax reductions in place," Moore said. "Not so in Massachusetts. If you look at the policies these two states are pursuing, the issues line up almost identically — gas, tobacco and business taxes."
A proposed 20-cent-per-pack tobacco tax increase in New Hampshire did not pass, but an automatic 10-cent increase will go forward. The state budget also does not include a 12-cent increase in the gasoline tax approved by the House, but does include $13.5 million in business tax credits passed last year that Gov. Maggie Hassan and the House wanted delayed for two years.
In Massachusetts, the state budget is built around $500 million in higher taxes on tobacco, gas, utilities and computer services for business.
"I think in both states we tried to explain as clearly as we could to the legislatures the importance of a tax structure that didn't negatively impact businesses," said Steve Ryan, executive director of the New England Convenience Store Association, who testified in both Concord and Boston. "Obviously in New Hampshire, decisions were made that result in a tax structure that's going to be significantly lower for some products. It's logical to assume that when tax disparities exist, particularly as it relates to tobacco, that there are going to be changes in consumer buying patterns."
That's what Erheb is counting on.
John Dumais, president and CEO of the New Hampshire grocers association, thinks he is not likely to be disappointed. "With Massachusetts raising their tax, we will generate additional revenue coming into New Hampshire because of that," he said. "Tobacco is a very price-sensitive item."
The $1 increase will bring the average cost of a pack of cigarettes in Massachusetts to $9.23, among the highest in the nation, compared to an average of $4.69 in New Hampshire, among the lowest.
Given the price of gasoline, consumers need significant price differences to make the travel worthwhile, Dumais said. "We have testified for years now that 40 percent of our consumer sales in New Hampshire come from out-of-state residents," he said. "We sell 40 percent more than our own citizens would consume in New Hampshire because we don't have a sales tax, we have low liquor prices, low tobacco prices."
From a business perspective, the just-finished session of the state Legislature gets good grades, according to Dumais.
"We can say that the New Hampshire Legislature this year was very good about understanding the economics of our business," he said. "They tried to work with us on a balance between state revenue and generating more cross-border sales. Now all we need is the weather."