A Senate bill that would add a 40-cent-per-pack tax on the state's No. 2 cigarette seller is touted as a financial windfall for Florida.
Based on purchases of 155 million packs last year, Dosal Tobacco customers would have coughed up an additional $62 million in state revenues. That increase would have bolstered the $365 million in fees Big Tobacco companies paid into the state's settlement fund in 2010.
But the Miami-based cigarette maker -- which is fighting renewed efforts to slap it with the same 14-year-old tax -- says that the math isn't so straightforward, and that the payoff would fall far short of expectations.
For starters, any price increase will send customers shopping for other competitive brands. Big Tobacco companies offer a host of discount smokes positioned to chip away at Dosal sales.
Yet any incremental increase in sales by Philip Morris, R.J. Reynolds, Brown & Williamson, etc., would not translate into a full 40-cent-per-tax gain for state coffers. That's because Big Tobacco's payments are calculated through a complex formula that includes national sales.
Payments to the state's tobacco fund are figured at: 5.5 percent x $8 billion x national market share. Thus, selling additional cigarettes in Florida would only nudge Big Tobacco's bill by pennies on the dollar.
"A tax increase on Dosal will give the advantage to Marlboro's discount brand, so they will be purchased and none of the money promised will materialize. It is a shell game and a market share grab, period," said Sarah Bascom, a spokeswoman for Dosal.
Speaking of Big Tobacco, one person close to the situation said, "If they lose so much market share, they can reduce payments [to the state]. This allows them to manage their payouts and collect from their customers."
While Philip Morris estimates that imposing the same fee on Dosal as its competitors will bring at least $175 million more into the state's tobacco fund annually, Dosal believes the figure is closer to $4 million.
Other estimates have ranged from $30 million to $80 million.
The projections vary so wildly because of so many X-factors. In the recent past, higher cigarette taxes have reduced the number of smokers and eroded state revenues.
After Florida raised its cigarette tax (on all brands) by $1 a pack on July 1, 2009, sales plummeted 27 percent during the first five months.
Fiscal year 2010 cigarette-tax collections tumbled to $300,212,611 -- a 28 percent drop from the previous fiscal year and far short of the state's revenue projections.
A similar scenario is plausible this time around as price-conscious customers, squeezed by rising costs of food, fuel and other essentials, may further curb their smoking habit or just quit buying cigarettes altogether.
Black-market sales also increase any time fees are tacked on. This, too, tarnishes rosy revenue projections. Florida cigarette prices currently range from Dosal's $3.50 per pack to $6 for premium brand names.
The experience in Minnesota may be instructive.
When that state's Legislature brought so-called "nonparticipating manufacturers" into its tobacco settlement, sales of those brands declined sharply and their associated sales-tax revenues fell by half.
David Sutton, a lobbyist for Philip Morris/Altria, says Minnesota's overall cigarette revenue projections are "on track." He reported that the state's excise tax revenues increased 6.4 percent with fee -- from $161 million to $172 million.
Dosal lobbyist and attorney Mike Huey sees the numbers differently.
"Big Tobacco is paying pennies on the pack for picking up market share," Huey says. Dosal does not sell its product in Minnesota.
Sutton says that "nonparticipating manufacturers" account for roughly 20 percent of the Florida cigarette market, with Dosal by far the largest.
Brand loyalty is another wild card in the financial calculations.
Industry research shows that younger smokers favor Marlboro (the No. 1 seller in Florida) and Camel over cut-rate brands like Dosal's "305." Assuming these buying patterns continue into the future, Dosal's contributions may be limited in the long run.
Indeed, Dosal reports that its sales have flattened or even declined in recent years. It's not alone. Brand by brand, state by state, Americans have become more conscious of the ill-health effects of smoking. Today, ex-smokers outnumber smokers.
State Sen. Thad Altman, who is renewing his effort this session to tax Dosal after failing last year, has the backing of Big Tobacco. Even though the Miami company was not a party to the settlement signed by its competitors in 1997, they want Dosal to start paying now.
Sutton says that since the settlement took effect in 1998, "Florida has lost over a billion dollars in fees that could have been collected as well as in lower settlement payments caused by the lack of this gap-filling measure."
If there's agreement on one point, it's that Dosal is being targeted because its Florida market share grew from 2 percent in 1997 to 16 percent currently. Because it didn't have to pay into the state fund, it could undercut its rivals on price.
Altria's Sutton says the Dosal "loophole" undermines the state's tobacco settlement. Closing that loophole, he says, will "eliminate unfairness by ensuring that all cigarettes sold in Florida contribute to health care costs, and help stabilize Floridas tobacco settlement payments."
Yet even assuming Dosal could maintain its 16 percent market share -- which is far from certain with the imposition of a 40-cent-per-pack tax -- that is 16 percent of a steadily shrinking market. And that undermines bullish predictions of future, ongoing windfalls that are diminishing as well.
Brenda Olsen, president of the American Lung Association in Florida, confirmed a "steady decline in smoking rates" in the state. Partially crediting "fairly aggressive" marketing and education campaigns, she said the number of Florida smokers has dropped by 500,000 since 2007.
"Opinions are changing," she said. "People are questioning whether it's normal to be a smoker."
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Contact Kenric Ward at kward@sunshinestatenews.com or at (772) 801-5341.
