Clarke: Tax cigars, chewing tobacco

Throwing another idea into the budget ring, Councilman Darrell Clarke today plans to introduce legislation that would tax cigars and chewing tobacco.

Council members also said they were reviewing a budget report from Econsult Corp. that said the city could raise as much as $20 million by restructuring the business-privilege tax.

These two ideas are part of complex negotiations on how to close a budget gap projected at up to $150 million. Mayor Nutter has proposed an annual $300-per-household trash fee and a 2-cent-per-ounce tax on sugary beverages, which would be charged as part of a retailer's business tax.

Council seems to have rejected the trash-fee plan. Many members prefer a proposal to raise property taxes. And the soda tax - which has drawn harsh criticism from soft-drink manufacturers, Teamsters and retailers - may be hanging by a thread.

Clarke said his tobacco-products tax, which would affect chewing tobacco, cigars, pipe tobacco and rolling papers, but not cigarettes, would be levied on retailers as part of the business tax and could raise $6 million annually.

"An overwhelming majority of Council members will support this measure," Clarke said. "It's at a point where we're trying to find any measures we can find consensus on."

Under Clarke's legislation, chewing and pipe tobacco would be taxed at 36 cents per ounce and individual cigars at 3.6 cents per ounce.

Although there is no legislation on the table yet, Council members have also been seriously looking at the business tax, which has two components - a gross-receipts portion, which taxes firms on their sales, and a net-income portion, which taxes profits.

The report Econsult provided to Council states that if the gross-receipts rate went from 0.1415 percent to 0.2 percent and the net-income rate went from 6.45 percent to 6 percent, the city could realize $20 million in additional revenue.

Econsult stresses in the report that the data on the business-privilege tax is "very preliminary."

Any change to the business-tax structure would mark a major shift in city tax policy. Since 1995, the city has been making small reductions to the gross-receipts tax, which reformers have long criticized for hitting businesses on their sales, even if they don't make a profit.

But Council members Bill Green and Maria Quinones-Sanchez have been reviewing a change in course - eliminating the net-income portion of the tax and raising the gross-receipts levy. They argue that the current structure penalizes city-based firms and lets national retailers get away with paying little or nothing.

Sanchez said Council was reviewing the Econsult report, noting that the idea might work as part of a multiyear plan to reduce the net income and increase gross receipts.

"It is something I'm going to advocate very strongly that we look at," Sanchez said. "I'm hopeful that over the next couple of weeks we will decide if this is a viable option."

Finance Director Rob Dubow said the city had serious concerns about raising the gross-receipts portion of the business tax.

"Studies have shown that is a real job- killer," Dubow said. "We haven't had any real discussion with them about this. But we'd have real concerns about this."