NY state cigarette tax hike burns collections-group

NEW YORK (Reuters) - New York state's cigarette tax revenue from convenience stores fell in the first six weeks after a steep tax increase, as consumers turned to Native American reservation stores, a convenience store group said on Wednesday.

New York state boosted the cigarette tax to $4.35 a pack from $2.75 on July 1 as one of a series of measures designed to help close a $9.2 billion deficit for fiscal 2011, giving it the highest cigarette tax rate in the country.

With the per-pack price rising to a range of $9 to $12, "aghast" smokers flocked to tribal stores, which are tax-free, the black market, and border states with lower cigarette taxes, said the New York Association of Convenience Stores.

Erik Kriss, a spokesman for New York state's budget office, said by e-mail that the drop in tax collections was caused by smokers buying ahead of the tax increase, which is supposed to discourage smoking.

Convenience stores that are located close to reservation competitors sold 45 percent fewer cigarettes; more distant stores experienced drops of 25 percent to 35 percent, the lobbying group said.

New York for more than a decade has tried and failed to force Native Americans to collect cigarette and fuel taxes from their reservation stores.

The tribes, who say they do not have to charge the levies because they enjoy sovereign immunity, face another test on September 1, when the state will begin requiring cigarette wholesalers to prepay the taxes before supplying reservation stores.

"Enforcement efforts against illegal black market sales should also discourage smoking," Kriss said. "All of this will make New Yorkers healthier and drive down health-care costs," he added.

(Reporting by Joan Gralla; Editing by Jan Paschal)