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Sin taxes Controversial, but they're only fraction of budget

by Nora Edinger

REGIONAL EDITOR

Video poker and smokeless tobacco taxes brought big controversy this legislative session. But the money isn't so big -- relatively.

With $23 million anticipated for fiscal year 2002, the taxes amount to a scant two-tenths of a percent of the state's $9.7 billion budget.

Even with the "sin taxes" on other tobacco and gambling revenue and alcohol added, the anticipated $361.3 million draw will bring in just 3.7 percent.

So why the fuss? That depends on whom you're talking to.

Here is a sampling of comments from various perspectives.

The political view

The percentage might not be high, but $23 million is still $23 million, according to Bill Case, spokesman for Gov. Bob Wise.

"It was the only area where we could see any growth," Case said of the financial incentive to legalize video poker.

That 30 percent tax will kick in Jan. 1 and can increase to 50 percent. It is expected to bring in about $22 million next fiscal year. When a full year of taxes can be collected, it is anticipated to bring in $87 million.

During the contentious debate on video poker, how that revenue would be spent became pivotal to its passage. Broadening the distribution from college scholarships to everything from property tax relief for the elderly to teacher raises to infrastructure improvements was particularly key in the Senate.

"This is what was riding on this bill," Case said of being able to use the revenue as debt service on nearly $1 billion in infrastructure bonds.

He said the 7 percent smokeless tobacco tax, which also includes pipe tobacco and cigars, is a different political animal.

With an anticipated draw of $1 million for fiscal year 2002 and $2 million in a full year of collection, "clearly, what we're after is not revenue," Case said.

The state Department of Health and Human Resources and several special interests groups ardently promoted the tax as a method to cut tobacco use.

The revenue view

"Sin taxes generally provide a stable source of revenue," said Mark Muchow, chief administrator of revenue operations for the state Tax Department.

"But they're not an ideal source of revenue. These revenues do not generally rise with inflation."

Muchow said the flaw is that sin taxes tend to be based on units of consumption rather than price. For example, cigarettes are taxed at a flat rate of 17 cents per pack of 20 or 21 1/4 cents per 25-pack.

"In the '70s and '80s, cigarette taxes were bringing in more like $40 million," rather than the current $31 million, Muchow said.

While the consumption and revenue was higher, the general budget was comparatively smaller. That made cigarettes a primary player.

The business view

The per-unit price is a concern among business people, as well.

Kathryn Folio, a Clarksburg city councilwoman, has five beer and wine distribution centers around the state. She said wine takes a harder hit than other sin-taxed goods, causing a number of West Virginians to buy by mail.

She said wine is flat taxed at $1 per liter while beer is taxed at 40 cents per case or $2.75 per half keg, for example.

"That's about 20 cents on a bottle of wine and 2 cents on a bottle of beer," Folio said, noting two economic eras are the source of the difference. "The beer tax came along in the late 1930s and the wine came along in 1981," Folio said.

In addition, wine sellers everywhere except Huntington pay an additional 5 percent club tax on top of the state's 6 percent sales tax, she said.

"That money (5 percent) goes back to the municipality or county coffers and it was supposed to be used to rehabilitate alcoholics.

"How many cities do you know of running alcohol programs? That money is going into their general funds. I resent that."

Folio said she would not object to the tax if it was used for rehabilitation.

Mike Shaffer, a Clarksburg grocery/sundry supplier, said the sin taxes are generally prohibitive to doing business, however. BF Specialty wholesales tobacco.

"There will be a lot of bootlegging going on," he said of state residents traveling across state lines to buy smokeless tobacco. "What if (the bootlegging resident) has a couple of friends who use it and brings back 10 cases?

"People who are following the law bear the burden for those who do not."

He also suspects many of the sin taxes ultimately target the poor, who may continue to purchase a product because of addiction, not choice.

"For every dollar more that they spend on tobacco taxes, that's a dollar less they have for something else," Shaffer said.

Regional editor Nora Edinger can be reached at 626-1447 or by e-mail at nedinger@exponent-telegram.com.

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