SALT LAKE CITY -- Cigar and pipe tobacco smokers in Utah can light up on the cheap for the next few months.
Smoke shop owners are trimming orders and offering deals to brace themselves for the tobacco tax increase that takes effect on July 1.
Gov. Gary Herbert let House Bill 196 go into law last week without his signature.
It raises taxes on a number of tobacco products, including a $1 hike on a pack of cigarettes.
The tax on cigars and pipe tobacco will go from 35 percent to 86 percent of the manufacturer's sale price.
Come July 1, smoke shops are expected to fork over in a one-time tax the 51 percent difference on their existing inventory. After that, the 86 percent rate will be in effect.
That explains the effort to rapidly push products out of the store.
The owner of the Tinder Box shop in Murray said that 51 percent could translate into a layout of up to $60,000 in July.
"Small businesses just don't have that much money lying around," said Joan Cvar, who with her husband owns the Tinder Box, which has been in business since 1972.
Cvar said the goal before July is to cut inventory in half, at least. The Tinder Box now has a "buy one, get one free" special on many high-end cigars that can cost anywhere from $15 to $40 apiece. It has dialed down its orders, and plans to start unrolling more packages and special offers soon.
"We would rather the customers get a good deal than pay the state," Cvar said.
The jump to 86 percent on cigars and pipe tobacco means Utah will have the second-highest tax rate in the country for these products, according to the International Premium Cigar & Pipe Retailers Association.
Even with new sales strategies, some establishments are uncertain about absorbing the blow over time.
"It's going to be real close, we've already had to lay off two employees," said 50-year-old Bob Hanselman, the owner of Timberline smoke shop in Logan. Timberline is only ordering the bare essentials and will start slashing prices a month before the tax takes effect.
"There are a lot of people angry about this tax increase, especially after the governor said no tax increase, and let it go into law," Hanselman said.
Herbert has repeatedly said he opposes increasing taxes, but the tobacco tax was built into the budget, and he and legislative leaders agreed to it. Herbert said in a statement last week that a veto would be "fiscally irresponsible" and create an imbalance in the state budget, particularly in the areas of public and higher education.
"Throughout this legislative session, I have been consistent in my opposition to tax increases at a time when the state continues to move toward economic recovery," Herbert said. "However, the Utah Legislature opted to approve a tobacco tax increase as a means to balance the state budget.
For Sen. Allen Christensen, R-North Ogden, who sponsored the bill and shepherded it through the state Legislature, it was always about personal health, not budget balancing.
"I never did care about the money, but in the end enough people did care about the money that kind of pushed it over the top," Christensen said. "I feel very strongly that I hate to impact a private business but it is their choice that they are selling this drug."
The tax, which covers cigarettes and chewing tobacco as well as cigars and pipe tobacco, is estimated to bring in roughly $44 million to the state for each of the next two fiscal years.
Not everyone is drawing up battle plans to salvage their business. Gary Klc (KELTCH), the owner of Utah's oldest smoke shop, Jeanie's, is calling it quits sometime in June.
Klc's father purchased the shop in 1949. It's closing because Klc, 50, said he can't come up with an estimated $125,000 tax on the store's existing inventory. And even if he could in the short-term, he sees the writing on the wall.
"Utah is not tobacco friendly anymore, we cannot run a business in this state," Klc said.
Pipes and lighters are 50 percent off, cigars and imported tins of pipe tobacco are marked down 20 percent.
"I'm not ordering anymore," Klc said, "and I've got three months to sell it all."
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