Mixed Results Achieved by ‘Sin’ Taxes in Nevada

Published March 1, 2004

A liquor tax hike implemented in Nevada in summer 2003 has done nothing to reduce alcohol use, but cigarette sales have slowed after an 80-cents-per-pack increase, the Reno Gazette-Journal reported on December 22.

At the time the tax hike was being debated, Duane Parde, executive director of the American Legislative Exchange Council, pleaded with his Nevada members not to raise taxes. “As I monitor the battle over taxes in Nevada, I am struck by the opportunity that you have to take a firm stand,” wrote Parde. “The decisions you make will decide the path your state will take for years to come: more government and higher taxes, or efficient government and lower taxes.

“Can you honestly say that your state government is limited?” asked Parde. “That it functions only to protect the rights of the people? Can you honestly say necessary programs cannot be streamlined or outsourced? If not, then tax increases should be off the table.”

Parde’s efforts notwithstanding, taxes were hiked … unnecessarily and counterproductively, observers now say.

“Government is looking to sock it to Nevada businesses and choking smokers with a tripling of the tobacco tax. This is all under the guise that state government is about ready to run out of money, when it isn’t,” said Doug French, executive vice president of a Southern Nevada bank and a policy fellow for the Nevada Policy Research Institute.

New state figures show Nevada residents and visitors “drank more alcohol, despite the 75 percent increase in the liquor tax.” Since the tax went into effect on August 1, the state has imported about one million more gallons of beer and 200,000 more gallons of wine and liqueurs compared to the same period the previous year.

“It’s a social thing,” said George Sturgeon, 24, a Reno stockbroker. “If people want to drink to be social, they are going to drink.”

“Where it hurts the most are the cheap vodkas and such,” said Jamy Keshmiri, who owns four Ben’s Fine Wine and Spirits stores in Reno and Carson City. “The customers, they were in kind of a shock. They come in one day and it’s $11.99, and the next day it’s $12.99. It kind of makes a big difference.” He said wine and beer sales are keeping up, but he’s taken about a 20 percent hit in hard liquor sales.

Curtis Worrall, owner of Whispering Vine Wine Co. in Reno, said the increased liquor tax has “not affected the demand for wine.” It has, however, cut into his profit margin. Phil Silver, a customer buying wine at Whispering Vine, said he has bought some wine on the Internet, but he thinks “it’s important to support local business.”

“Don’t do it again,” said Silver, an operations manager for a Reno interior design firm. “I am not pleased. I would’ve rather seen cuts in the budget. If they had waited another two years, we would’ve recouped everything we lost because of 9-11.”

Concerning cigarettes, the Gazette-Journal reported, “Many smokers said they aren’t smoking less because of the tax, and smoke shop clerks said they haven’t noticed a dip in sales.” Instead, clerks said more people are buying roll-your-own tobacco, a pouch of which can yield 200 homemade cigarettes.

“At first, they liked to cuss me out, like I personally raised the tax myself,” said Tracy Williams, a cashier at Smoke! Discount Cigarettes on Clear Acre Lane in Reno. “After a week of that, they haven’t complained.”

Stephanie Bell, a Carson City insurance agent, said she “isn’t smoking less but is paying more attention to the price and is buying in bulk.”

She recently walked out of one Carson City smoke shop to seek a cheaper price for Marlboro Lights down the road. “I’m definitely buying by the carton now instead of by the pack.”

According to state tax officials, liquor taxes since the start of fiscal year 2004 have generated $400,000 more than expected. At the same time, the state has collected $1.8 million less in cigarette taxes than expected.

“With respect to cigarettes, we don’t know what is actually happening out in the marketplace,” said Dino Dicianno, deputy tax director. “Have they quit smoking? Are they purchasing cigarettes across the border or on the Internet? What’s going on?”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].