Sid Patel thinks it’s a bad time for Charlottesville-area municipalities to enact local cigarette taxes.
Patel, owner of Tobacco 4 Less in Albemarle County, said the COVID-19 pandemic already has been hard on local business owners and community members, and adding a tax won’t help. He also pointed to the state cigarette tax rate increasing from 30 cents to 60 cents per pack in 2020.
“The COVID pandemic has caused financial hardships for retailers who have worked very hard to remain open to serve their customers,” he said. “The proposed local tax will cause customers to drive to a neighboring county or nearby city which does not impose this tax to purchase cigarettes or tobacco products at lower prices. The additional loss of sales would translate into lost jobs and likely store closures.”
The regional tax would only apply to cigarettes, not other tobacco products.
State law changed in 2020 to allow counties the option to levy new taxes, similar to cities’ longstanding taxing authority, including adding a local cigarette tax of up to 40 cents per pack.
Albemarle, Greene, Fluvanna, Nelson, Orange, Madison and Augusta counties are working with the Thomas Jefferson Planning District Commission to form the Blue Ridge Cigarette Tax Board, which would allow for uniform administration of local cigarette taxes throughout the region. The city of Charlottesville, which first implemented a local cigarette tax in 1993, also might join the board.
On Wednesday, the Albemarle County Board of Supervisors will be one of the first bodies to hold a public hearing on an ordinance to form the regional cigarette tax board.
At its Sept. 15 meeting, the board will vote on whether to schedule a public hearing to consider an ordinance to implement the tax.
Patel, who has been involved in the tobacco business for two decades, worries about losing customers who buy cartons, which hold 10 packs of cigarettes, and those who come to his business for its low prices.
“We have customers coming from Buckingham because we have good prices, so if we jump up the price, we’re going to lose customers coming from around the county,” he said.
Albemarle and other Central Virginia counties have advocated at the General Assembly to get equal taxing authority to cities in the state as a way to alleviate reliance on real estate taxes from property owners. In 2020, counties were granted the authority to enact some taxes that cities can, and to increase caps on existing taxes.
David Blount, the TJPDC’s deputy director and legislative director, has been working with the localities on the formation of the regional board. He said they’re looking at a model based on the Northern Virginia Cigarette Tax Board, which includes 19 localities.
“That is a model that the wholesalers at the state level will tell you worked well, because from their side, they’re dealing with one entity as opposed to dealing with 19 different entities,” he said.
In Northern Virginia, the wholesalers and distributors purchase dual stamps that cover the state cigarette tax and the local cigarette tax from the state Department of Taxation. Those cigarettes are then distributed to various retailers throughout the region, who in turn pay the wholesalers.
Instead of the distributors remitting funds collected from the retailers back to 19 localities, they remit to one cigarette tax board. The cigarette tax board then handles the distribution of the tax revenue to the localities from where it is collected, less an administrative fee to fund the operations of the regional body.
“If the locality were to do this on their own, then each locality would have to have their own interactions with the wholesalers and distributors. They would have to have their own interactions with retailers, they would have to conduct any education, awareness and enforcement of their local ordinance that would be necessary, required or that they would desire to do, and you would see that then have to be replicated across every locality,” Blount said.
Every county in the planning district except Louisa County, as well as Orange, Madison and Augusta counties, adopted a resolution of interest in participating in a regional cigarette tax board. The ordinance to create the board says it will be formed once six or more localities formally agree. The board will always need involvement from six or more localities to exist.
If approved, the localities would still have to adopt local cigarette tax ordinances before collection by the regional board would start in January.
According to TJPDC estimates, the one-time costs for the board would be about $212,650 for technology and equipment, a vehicle for enforcement, a reserve and other startup costs, which would be split among the involved localities.
In the first year, which would only be six months of the current fiscal year, ongoing costs are estimated to be about $98,240. That total covers salaries and benefits for two staff members, mileage, a parking pass, other vehicle costs and other indirect costs. Ongoing costs in other fiscal years would be about $196,480.
The TJPDC also estimated that in the first fiscal year, net revenues for the localities could range from about $402,500 in Albemarle to $48,822 in Madison, while in other years it could range from about $961,000 to $116,620, respectively.
The possible cigarette tax in Albemarle is one of the first ordinance changes to go through an equity impact assessment by the county’s Office of Equity and Inclusion.
During a presentation earlier this year, county staff noted that those most affected by the adoption of a cigarette tax will be smaller grocery and convenience store owners, people who are low-income, those who are Black, indigenous or persons of color and those experiencing severe mental illness and substance abuse disorders.
If the Albemarle board ultimately decides to enact a cigarette tax and join the regional board, it would decide how to allocate revenues during its fiscal year 2023 budget discussions, according to county staff.