At some vendors, cost of cigarettes rises as state enforces pricing law
State cracks down on cigarette prices
Massachusetts is starting to enforce a 60-year-old minimum pricing law for cigarettes, sending out Revenue Department officials to about 30 retailers to make sure they raise their prices to comply with the state law.
A department spokesman said one of the retailers had to increase his price on a pack of Marlboros by more than 90 cents.
The Revenue Department uses a formula to establish a minimum retail price for each brand. The minimum for Marlboros, the best-selling brand in the nation, is $4.66 at nonchain stores and $4.59 at chain stores.
"Everybody always wants to pay less for any product, but the law forces us to enforce a minimum price in this case," said department spokesman Timothy Connolly. Nick Antoun, owner of three gas stations, in Quincy, Dorchester, and Millis, said he was visited by a Revenue Department official recently and required to increase his price for Marlboros to $4.66, from $3.99. He said he had been selling cigarettes at a tiny profit, using low prices to pull customers into his stations. Now, he said, many of his customers are heading to New Hampshire or the Internet to buy cigarettes.
"We're making a dollar-a-pack profit now, charging the state minimum," he said, adding that the gain in profit has been offset by lost sales on other items.
Cigarettes are not the only product in which the state plays an active role in keeping prices up. This year, the Department of Food and Agriculture accused Midland Farms of North Easton of violating a state law barring the sale of milk below cost and ordered it to raise prices. The state also investigated the cost of milk at 15 Mobil convenience stores, but dropped the inquiry when Mobil raised prices.
The cigarette-pricing law has been on the books since the 1940s, but had not received much attention from regulators until recently.
The law was intended to prevent a retailer from using low prices on cigarettes to force a competitor out of business. The Revenue Department arrives at a minimum retail price by starting with the wholesale price charged by a cigarette manufacturer and adding a retail markup. The law allows retailers to charge less if they can show their costs are lower. In recent years, however, manufacturers began offering steep discounts directly to retailers to gain more control over how their product was sold. But those discounts, called buy-downs, allowed retailers to justify charging prices well below the state minimum.
After a long review -- and over strong objections from convenience stores -- the Revenue Department ruled the retail buy-downs were illegal and barred them, as of Oct. 1.
Since the beginning of the month, Connolly said, Revenue Department representatives have visited 30 retailers, informed them of the law, and waited at the stores until they brought prices and advertising into compliance.
Only if a store refused to comply would its license to sell cigarettes be revoked, he said. Retailers that can prove they have lower costs may also be allowed to sell below the state minimum, Connolly said. Costco Wholesale Club and BJ's Wholesale Club have done so in the past.
The Revenue Department has taken a low-key approach to enforcement, contacting stores only if officials in the normal course of their business notice prices below the state minimum. But the agency is starting to get help from some retailers. Connolly said a retailer in Winchester, who was complying with the state's minimum pricing law, notified the agency about competitors who were not.
The Revenue Department contacted the Stop 'N Gas station on Washington Street in Dorchester yesterday after the Globe ran a photograph that showed cars lined up for $1.43-a-gallon gas and a sign offering Marlboros for $3.75 a pack. Owner Essam Ahmed, said he told the state official who stopped by that the Marlboro sign was incorrect. He said his correct price is $4.75, plus tax. He also said he planned to cut the price of gasoline to $1.39 a gallon.
Bruce Mohl can be reached at email@example.com.
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