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Speedway LLC
500 Speedw ay Drive
Enon, OH 45323
Telephone 937-864-3000
House Ways and Means Committee
Opponent Testimony by Gary C. Kuns, Speedway LLC, on Proposed Tobacco Tax
Increase and
Minimum Price Repeal
Wednesday, March 4, 2015
Good afternoon, Chairman McClain, Ranking Member Cera and members of the House Ways
and Means Committee, my name is Gary C. Kuns. As Director of Marketing Support and
Tobacco for Speedway LLC, I am appearing before you today to express Speedway’s opposition
to the tobacco tax provisions contained in HB 64 as well as revisions to the state minimum price
law.
Speedway currently operates 487 Convenience stores across the state of Ohio that offer fuel as
well as beverages, candy, sundry items, tobacco products and many other convenience items. In
2014, we employed 6,311 associates at our 487 retail stores in Ohio and approximately 1,000 at
our corporate headquarters in Enon, Ohio with a total payroll of $191.5 MM.
As Director of Marketing Support and Tobacco at Speedway for the past decade, I oversee the
entire tobacco category for the company, including cigarettes, other tobacco products like cigars,
moist snuff and chewing tobacco as well as new technology in electronic cigarettes and Vapor
which is currently being explored by the FDA as a reduced risk product – a new and growing
segment of the category. The tobacco sector accounted for roughly 47% or $495.1 MM of
Speedway’s overall sales revenue in 2014, so therefore it is a critically important part of our
business. These revenues help support jobs.
Speedway is opposed to the proposed $1 per pack increase in the cigarette excise tax, a
comparable and significant hike in the OTP rate (from 17% of wholesale price to 60% of
wholesale price) as well as creation of one of the nation’s first state taxes on vapor products. My
first comments are to the language in HB 64, which has received little if any attention. The
legislation before you proposes to repeal the state’s current minimum markup on cigarettes and
replace it with a new section that we fear would significantly limit the ability to conduct
manufacturer-supported sales promotions. Are you prepared to explain to Ohioan’s that this is
the second version of a retail price increase to the consumer, by changing the State minimum
law? The example, the 1st increase is $1 per pack and the 2nd is state minimum law change.
If this tax increase proposal is enacted it will give Ohio the highest cigarette excise tax in the
Midwest and one of the highest cigarette and tobacco products tax rates in the United States.
Every bordering state — Michigan, Pennsylvania, West Virginia, Kentucky, and Indiana — will
have substantially lower cigarette taxes and zero Vapor taxes. Ohio will become one of only
three states in the nation to tax vapor products. This policy decision has far-reaching implications
for my company and its customers, employees and suppliers. In the past, we have witnessed this
migration of customers across state lines when tobacco tax increases.
Tax-paid cigarette sales in Ohio have declined an average of 5.4 percent for the last decade —
outpacing the national average of 3.9 percent. The proposed tax increase will drive consumers to
look for lower or untaxed alternatives. That’s not speculation. We saw it happen in 2005 when
the legislature last increased cigarette taxes. Tobacco shipments dropped, benefitting neighboring
states at the expense of Ohio retailers. Tax sales declined 25 percent within three years.
Ohio’s current cigarette minimum price law – like similar laws in roughly half the states across
the country enacted in the 1940s through 1960s - was originally put in place as a tool to ensure
fair competition between large retail operations like Speedway and smaller, independent
retailers. The current law is clear and well known to retailers and has served us well for many
years. We don’t fully understand why the Ohio Department of Taxation would seek to eliminate
this law and replace it with something that is vague and difficult to interpret.
Speedway also contracts with cigarette manufacturers on programs that use price discounts and
promotional allowances to maintain or stimulate sales. These price discounts, such as buy downs
that offer specified cents off per pack on existing inventory and run for a limited length of time,
are done in full compliance with the state minimum price law. These types of promotional
programs are not uncommon or even specific to the tobacco industry but also apply to many
other consumer products. Probably the best example of a promotional tool is the manufacturer
coupon that we are all familiar with today. HB 64 would significantly limit these programs. It is
this state minimum law change that creates the second retail price increase.
As previously stated, tobacco sales and especially cigarette sales, are an important part of
Speedway’s overall business. Because of changing social norms cigarette and tobacco use is on
an obvious downward track. According to the Ohio Department of Taxation Annual Report on
tobacco from 2012 (the most current year available on the ODT website) cigarette revenues have
declined from $915.5 million in 2008 to $771.8 million in 2012. We would ask you to validate
your assumptions vs. history in your current proposed law, to call some of your Representatives
in other states to validate the tax math forecast for future years. The state of Illinois went up $1
per pack recently in 2012. Speedway has over 100 stores in this state. Speedway is one of the
largest marketers in the state of Illinois. We recognized the enormous decline in unit sales as a
company and so did the state of Illinois in reduced tax revenue. Ask your friends like the state of
Illinois if they have gained the tax revenue expected? Publicly, officials in Illinois have stated,
that they had negative revenue after one year. Do the math, on your proposed multi method
approach of increased tax and retail price to the consumer.
Finally, this tax increase violates free market principles and puts Ohio businesses at a
competitive disadvantage — a disadvantage with dire results. The promise of steady state
revenue is an illusion if you take into account the points that have been made. Tobacco products
are already among the most heavily taxed, and 91 percent of cigarette excise tax increases that
have passed in this country have missed projections.
On behalf of Speedway, we urge this committee to restore the existing cigarette minimum price
law to maintain fair and equal competition among retailers and that any tax dollars are collected
by Ohio and not our neighboring states. Thank you for your time and attention to this important
issue.
Sincerely,
Gary Kuns
Director, Marketing Support & Tobacco