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Cigarette prices rise three weeks ahead of 62-cent tax

Smokers who were preparing to take a hit to their wallets next month are learning to their surprise that the era of nearly $5-per-pack cigarettes arrived early.

On April 1, the federal government boosts its tax on cigarettes to help pay for a children's health care program. But many tobacco companies, in anticipation of the extra 62-cent tax, decided to implement price hikes now — about three weeks early.

Tobacco giant Philip Morris, maker of popular brands Marlboro, Virginia Slims and Parliament, upped its list price 71 cents per pack on Monday. R.J. Reynolds, maker of Kool, Camel and several discount brands, plans to raise prices between 41 and 78 cents beginning Monday.

This, in turn, has driven the retail price of most packs of cigarettes up about $1 at many local stores.

The move left convenience store owners dealing with the aftermath.

"I knew it was going to go up, but I thought it was going to go up April 1," said Richard Diaz, owner of a Citgo convenience store at 49th Street and 30th Avenue N. in St. Petersburg. "I have customers taking it out on us, thinking it's us raising prices."

Tobacco companies, while acknowledging that the upcoming tax increase influenced the list price hikes, are mum about why they phased it in early.

"As a policy, we don't comment on pricing strategy," said David Howard, a spokesman for R.J. Reynolds, the nation's second-leading tobacco company. "We do not set the price of retail. We took a larger list price increase."

List price applies to direct buy customers and wholesalers, Howard said. It is still up to retailers to decide the final price customers will pay, he said.

Philip Morris spokesman David Sutton said his company's 71-cent list price increase is a direct result of the new tax.

"Of that 71 cents, 62 is going to the federal government," he said. "Everyone's going to have to do it. We took a business decision to implement that increase now."

As of April 1, the total federal tax will be $1.01 per pack. The state of Florida charges 34 cents tax per pack.

Local tobacco retailers say the move was probably an attempt to get people used to higher prices.

Phasing the increase in also could help stabilize the market, said Fred Hoyland, owner and president of Tobacco Depot, which has 17 Tampa Bay stores.

"They don't want people to wipe stores out a week before April 1," said Hoyland, who's been in the business for 14 years. "It is confusing, but the reality is the manufacturer has the right to put it up."

The fact that prices are going up isn't surprising, he said. Manufacturers would logically have to increase prices to cover the higher taxes they must send the government.

It's the timetable that's causing the widespread confusion among retailers and consumers, he said.

"In fact, the government has caused this problem," Hoyland said. "If they (people) think their cigarettes aren't going up till April, they're wrong. … All the big guys have already gone up."

The increased federal excise tax, signed into law Feb. 4, will extend health care to 4 million uninsured children under the State Children's Health Insurance Program, known as SCHIP.

SCHIP, created more than a decade ago to help children from families who couldn't afford private insurance but earned too much for Medicaid, was set to lose its funding March 31.

"In my opinion, it's okay to raise the prices, but keep the promise," said Diaz, the Citgo owner. "If it's April 1, keep it April 1."

Diaz said angry customers think he's jacking up prices. Others wonder whether they'll see their cigarettes go up again in three weeks (They won't).

The situation prompted several stores to make signs explaining the issue to customers.

Still, many smokers say they are angry about the early increase.

Kim Dugray, who said she smokes about a pack of Misty 100s a day, hadn't heard anything about the new tax when she went to pick up her smokes this week.

"Yesterday I paid $3.60, and they're usually $2.65," she said. Some premium brands, such as Marlboro, are approaching $5 at some stores.

Dugray's friend Dana Rizzo said her Newport shorts also cost her nearly $4, about a dollar more than last week.

"I was a little upset," the 26-year-old said. "This is ridiculous."

Some smokers saw a possible bright side.

If nothing else, the higher prices might just be the incentive they needed to quit.

"I enjoy smoking … but paying over $4, I'm just not going to do it," Dugray said. "I'll go get a massage instead."

Kameel Stanley can be reached at (727) 893-8643 or kstanley@sptimes.com.

FAST FACTS

Phasing hikes in

The federal excise tax is increasing 62 cents per pack April 1 to fund the State Children's Health Insurance Program. The tax, signed into law Feb. 4, will extend health care to 4 million uninsured children. But several tobacco companies have already decided to phase in the increase to their list prices during within the next few weeks. Here's a look at some of the popular brands. (Retail prices vary).

This Week:

Philip Morris, maker of Marlboro, Virginia Slims, Newport and Parliament, went up 71 cents ($7.10 a carton) starting Monday.

Next Week:

Kool, Camel, Winston

and Salem — list price is increasing 44 cents a pack.

Pall Mall, Doral, Capri list price goes up 41 cents.

Cigarette prices rise three weeks ahead of 62-cent tax 03/12/09 [Last modified: Thursday, March 12, 2009 11:17pm]
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