- Associated Press - Wednesday, May 13, 2015

NASHVILLE, Tenn. (AP) - The price of cigarettes is going up in Tennessee, but the proceeds won’t be landing in state tax coffers.

The Chattanooga Times Free Press reports (https://bit.ly/1RAbuVA) that under a new law signed by Republican Gov. Bill Haslam, the minimum markup on cigarettes - which retailers say covers the “cost of doing business” - will rise from 41 cents on each pack of cigarettes to 76 cents per pack over the next two years.

That 85 percent increase in the markup is projected to direct $129 million into retailers’ bottom lines by the third year of the law. It’s the first change in the state’s cigarette markup in 65 years.

Tennessee’s “Unfair Cigarette Sales Law” is similar to the laws enacted in half of the states largely between the 1940s and 1960s to protect smaller retailers from competition by chains and large discount stores. A similar mandatory markup was written into last year’s state law allowing wine to be sold in supermarkets.

The cigarette pricing bill was opposed by the Beacon Center of Tennessee, a libertarian think tank and advocacy group.

“This government-imposed price hike amounts to a hidden tax increase, but it’s actually worse than that,” said Justin Owen, Beacon’s president. “At least with a tax increase, that money is returned to the taxpayer in the form of government services. Here, the retailer gets to pocket it all.”

The last time Tennessee increased its tax on cigarettes was in 2007, when the levy on each pack of cigarettes was hiked from 20 cents to 62 cents. That measure passed the Senate by a single vote, with all Republicans voting against it. This year’s bill faced far less resistance, passing the GOP-controlled chamber unanimously.

Emily LeRoy, executive director of the Tennessee Fuel & Convenience Store Association, said the price cushion is needed because pressure from tobacco manufacturers to keep prices low meant convenience stores were making little money on a product that makes up about one-fifth of sales.

LeRoy told the newspaper that the price increase is “good health legislation and it’s good for retailers.”

Health advocates like the Children’s Hospital Alliance of Tennessee, the March of Dimes and the Tennessee Chapter of the American Academy for Pediatrics supported the measure. Research shows price increases for cigarettes helps get smokers to quit - especially among children.

One beneficiary of the new law will be Pilot Flying J, the truck stop chain owned by the family of Gov. Bill Haslam. But the governor’s office, supporters and opponents of the measure said Haslam played no role in promoting the bill.

Haslam spokesman David Smith said the governor’s ownership ties to Pilot “had no bearing on his decision to sign the bill.”

“Any implication that the governor cared one way or the other about this bill is just not true,” Smith said. “Again, we deferred (to the Legislature) when it first came out.”

Legislative projections indicate the bill will be a wash for state tax revenues. It is estimated that fewer packs will be sold because of the price hike, meaning there will be less revenue from the cigarette tax. But because the price will be higher, the state should collect more in sales taxes, according to the analysis.

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Information from: Chattanooga Times Free Press, https://www.timesfreepress.com

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