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Does Idaho care about the small businesses?

Does Idaho care about the small businesses?

Fred Birnbaum
August 30, 2016
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August 30, 2016

Paul Banducci owns Bulldog Pipe and Cigar in Coeur d’ Alene. As you can imagine, Paul is enthusiastic about fine tobacco and serves a niche for those who appreciate supporting a local business. Paul works long hours, as the shop is open seven days a week; for Paul to support his family, it almost has to be.

You see, while many folks in Idaho may not smoke cigars or particularly care for tobacco products, they shouldn’t want to place a small businessman, who is selling a legal product, at a disadvantage relative to out-of-state competitors.

Or do they? That’s exactly what Idaho is doing to Paul.

Every month Paul is required to pay a 40 percent tax for each cigar, based on his purchases from the manufacturer. He has to cut a check, whether he sells the cigars or not. Think of this as an inventory tax. The problem is compounded because the federal government levies an excise tax on the cigars at the manufacturer’s level.

So if Paul buys a 20-count box of cigars from the manufacturer for $100, the federal government has already taken $8.20 in taxes. But the state of Idaho adds its tax, on top of the federal tax. That box of cigars costing $91.80 before federal and state taxes requires Paul to charge $148.40 to simply break even, when including the final sales tax.

Cigar smokers are left with a choice to pay the heavy taxes Idaho imposes or to buy online from states such as Pennsylvania and Florida, which don’t tax cigars.

I’ve never understood why policy makers don’t understand the unfairness of this set-up. Alright, so some of them don’t approve of smoking, or they simply like sin taxes. But Idaho is now down to a handful of brick-and-mortar premium tobacco shops. People who formerly worked at these businesses have lost jobs, dollars flow to other states, and the state forgoes all of that tax revenue. Does that make sense?

Sometimes a simple policy change, such as not putting Idaho businesses at a disadvantage to out-of-state competitors, via punitive taxes, is all that’s required. Some lawmakers believe adding an online sales tax is the solution. We think not, especially in this case. Simply adding 6 percent to the purchase price of cigars from out of state will hardly put a dent in the competitive disadvantage that hits Paul — the 40 percent tax per cigar. It’s the punitive taxes that drive cross-border shopping.

In the age of huge tax incentives to lure large businesses to Idaho, can we also avoid putting small ones at a competitive disadvantage?

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