Moe Taheri, owner of Santa Monica Tobacco, rang up his customer’s order. It was the usual tub of American Spirit and rolling papers, a good mix for people who want to cut the chemical additives out of their cigarettes by rolling their own. When the total appeared in blocky green font on the cash register, the customer balked.
“Oh, I can’t do that. Can I take Bugler?”
“I have no problem with that,” Taheri said, and went to exchange the tobacco for the less expensive brand.
It’s a problem Taheri has seen increasing since the sales and tobacco taxes increased on April 1. Many customers are switching from premium tobacco and cigarette brands to more generic ones to cope with higher prices.
Coughing up a little bit more<p>
The federal excise tax on cigarettes increased 62 cents per pack to $1.01, a 158 percent increase. Rolling tobacco has sustained the largest increase at a whopping 2,159 percent.
The new revenues will be used to fund the Children’s Health Insurance Program (CHIP), a state program that insures children in families without access to affordable employer-sponsored insurance. The reauthorization act will allow states to enroll more children who already qualify for coverage in the program and will expand to include 4.1 million more children by 2013.
The new taxes have been difficult for retailers like Taheri to explain to customers, many of whom didn’t know about the increased tax.
“Half of them didn’t know,” Taheri said. “Now we have to go through the hardship to make them understand that it’s part of the federal government and there’s no profit to be made for us.”
As soon as the rest of his customers became aware of the increase, they rushed the store, buying up much of his stock.
“I was sold out of most of my items in just a couple of days,” Taheri said.
It is too early to tell what effects this will have on tobacco retailers, said Jim Kline, assistant manager of The Tinder Box, a tobacco store in Santa Monica.
“It’s only been 10 days,” Kline said. “But it’s crazy. You’re already dealing in the state of California with a 45.13 percent tobacco tax … . Naturally, that cost gets passed on to the customer. It’s the lower-income customers who get hit the hardest.”
Though prices are steep, Santa Monica smokers don’t see themselves cutting back any time soon.
“I thought about it, and I cut down for the last week, but now I’m smoking regularly,” said Kareen Dang as she and four others from the Vidal Sassoon Salon in Downtown were taking a smoke break in front of the building. “I just go to places where they have sales and coupons now.”
Although smokers understand that the federal and state governments need revenue, some feel that they are sharing an unfair part of the burden.
“I’m a little annoyed that they’re always trying to get it from us,” said Ursula Holder , an employee at Fred Segal. “Especially now, with the economy, you think they’d give us a break.”
The state of California taxes tobacco at a rate of 87 cents per pack on top of sales tax, meaning that state and federal taxes add $1.88 per pack of cigarettes. However, if California State Assemblyman Tom Torlakson gets his way, the prices are going to get higher.
Torlakson’s bill, AB 89, was presented on Jan. 5 and would raise the California cigarette tax to $2.10 per pack. The additional funds would be used to support education, children’s healthcare and tobacco-related disease research and cessation programs.
The proposed bill won’t complete the legislative process until September, so any possible increases won’t be seen until late this year if at all.
No mercy from the taxman <p>
Sales tax for nearly all items also increased on April 1 with a half-percent hike to 8.75 cents on the dollar.
A consequence of Measure R, a Los Angeles voter initiative that is expected to raise $30 to $40 billion in transportation funding over the next 30 years, the tax will put a big chunk toward a number of city projects including the so-called Subway to the Sea, a light rail system into LAX, and the widening of the I-5 Freeway.
As consumers begin to see the hit that the increase will make on their month-to-month finances, their spending will likely be restricted, and this in turn will put greater pressure on local businesses to cut costs and retain customers.
Many business owners said that while it is too soon to say if sales will be greatly impacted by the tax increase, they pushed for more business during the final weeks of March in anticipation of a setback.
“It’s too soon to tell,” said Avo Guerboian of Readers Fine Jewelry. “I made certain sales before the switch in anticipation. We don’t like it, but I don’t see why any retailer would. Sales are tight now anyway.”
Guerboian explained that business has not been especially good for Readers lately because the outfit has temporarily moved into Studio 319 while their regular location is being renovated up the block.
“As of now I haven’t seen a lot of change,” said Eddie Guerboian, owner of Readers. “There was no resistance from customers (since the tax increase).”
Other big-ticket items, even those of greater immediate utility, have been affected.
“Every increase, regardless of how small, is going to reduce sales, unless there’s a corresponding counter effect equal or greater,” said Michael Nichols, general manager of Carlsons TV and Appliances.
Nichols said that, however, the small increase also produced a minor increase in sales immediately prior.
“It was a small saving, but it was bonafide,” he said. “One percent is 1 percent, and if you had to buy something — it wasn’t something you could delay — you may as well go ahead and do it to have an honest savings regardless of the small amount.”
Because Carlsons does most of its business with apartment house accounts, most of their customers are interested in basic, functional appliances. These value buys, Nichols said, are perhaps Carlsons’ strongest sort.
“I think my sales are going to go up because I’m being presented with unusual opportunities for closeouts because the economy is so bad. I’m able to buy merchandise for a lot less than I normally could,” he said. “Even still, it’s harder this year than it was last year and the end of last year was no picnic.”
Driving up costs<p>
Car sales have slumped considerably since the recession began last fall, but many dealers have had to make additional adjustments in light of the Measure R tax hike.
“It’s not going to stimulate the economy, it’s going to set it back more, especially on high-ticket items like cars,” said Pat Ryan, a resident of Beverly Hills whose family recently sold their car dealership in the central valley because of diminished business.
“One percent on 30 grand is a lot of money,” Ryan added. “The housing goes first, then the car business — they don’t talk about it, but it’s about to collapse. It’s terrible. It’s from Mercedes to Kias. Nobody’s buying cars at all.”
Though local auto retailers are not doing much better in the long run, many saw sales increase slightly toward the end of March as buyers looked to avoid paying the swollen tab.
“April is always a pretty tough month. You’ve got the Passover holidays, somewhat of a recession going on, and you have taxes,” said Matt Unger, sales manager at Lexus Santa Monica.
Unger said that his dealership had a record month in March with 369 sales, new and used, most of them motivated at least in part by the then-impending tax increase. Lexus Santa Monica has also created a special sale, offering to pay the difference incurred by the tax in order to push more potential buyers into cars and off the lot.
“That was the reason we bought the car,” said Jerry Montoya, a freelance illustrator who bought a Corolla from Toyota Santa Monica. “My wife and I did it two days before the tax increase.”
Montoya said that while he hasn’t yet noticed the effect of the tax increase because he has tried to limit his spending recently, he is anticipating a tighter budget.
Dan Reisenfeld, a Santa Monica resident who was recently laid off by Wells Fargo, said he doesn’t necessarily support the Measure R tax because the state is in “stagflation.”
“The price of goods and services is not adjusted for the aggregate wage,” he said. “I think by increasing the sales tax it’s going to hurt a lot of companies. I am a lot more frugal than I was two or three years ago, and other people are going to be a lot more frugal, just by that small tax alone.”
Even still, some are willing to shoulder the weight for the greater good. Montoya had no complaints.
“Everybody’s suffering right now, but I’m of the mind that if you have to pay a little more tax, so be it,” he said. “You make adjustments and you compromise and you improvise.”