Fearful that Massachusetts retailers and smokers would be hurt ifa state-imposed prohibition on retail cigarette discounts takeseffect next week, the administration of Acting Governor Jane M. Swiftyesterday started backing away from the ban.
The surprising reversal came as Philip Morris, the nation'slargest cigarette manufacturer, said it was preparing to eliminateits retail price promotions in Massachusetts for at least the nexttwo months, a move that was expected to boost the price of a pack ofMarlboros and other brands by 60 cents each.
Kevin Sullivan, Swift's secretary of administration and finance,said he wanted to take a second look at the directive on retailcigarette discounts issued by the Massachusetts Revenue Department.The directive had been in the works for months and was scheduled totake effect Monday.
The fallout from the retail discount ban, coupled with a proposed75-cents-a-pack increase in the cigarette excise tax passed by theHouse and Senate, could have made Massachusetts cigarettes the mostexpensive in the country.
Some retailers, who rely heavily on cigarette sales and the foottraffic they generate, have warned that the rapid runup in priceswould spur consumers to buy cigarettes in other states or on theInternet.
"The times dictate we take a second look at this," Sullivan said."I think we've got to be real careful on how we proceed with thisindustry. I don't really care about Philip Morris and the tobaccocompanies. They'll continue to make their profits. The people I'mmost concerned about are the small retailers and consumers."
Sullivan said he would like to reverse the Revenue Department'sdirective or, if necessary, get legislation passed that wouldcontinue to allow cigarette manufacturers to offer retail discounts."I think the retailers have put up a good argument," he said.
Sullivan said he plans to meet with officials from the RevenueDepartment and the New England Convenience Store Association laterthis week on the matter. The association says its members derive one-third of their revenue from cigarette sales, with cigarette buyersaccounting for a large portion of other purchases as well.
Representative Paul Caron, a Democrat from Springfield who hasfiled legislation to postpone the Revenue Department's directive,planned to hold news conferences today with retailer groups inSpringfield and on Beacon Hill to press for postponement.
The new policy on retail discounts, called "buy-downs" in theindustry, came about after an internal review of the state's fair-pricing law at the Massachusetts Revenue Department. The 1945 statuterequires the department to set a minimum price for cigarettes, toprevent a retailer from slashing his prices to drive competitors outof business.
The state's minimum price is calculated using the invoice pricethe manufacturer charges the wholesaler. Currently, it is $4.46 for apack of Marlboros at chain stores and $4.52 at other stores.
Most retailers are able to charge 50 to 60 cents less than theminimum price because of buy-downs offered to them by cigarettemanufacturers. The Revenue Department recently concluded the buy-downs violated the terms of the fair pricing law and banned them asof July 1.
Thomas Ryan, a spokesman for Philip Morris, said his companydisagreed with the Revenue Department's reinterpretation of the fair-pricing law but felt compelled to discontinue its 60-cent-a-packretail discounts for July and August. Philip Morris makes Marlboros,Virginia Slims, Parliament, and Basic.
Ryan could not be reached last night after Sullivan indicated thestate may be prepared to back away from its directive.
It was unclear yesterday whether other cigarette manufacturerswere prepared to follow Philip Morris's lead. The Revenue Departmentdirective only prohibits cigarette manufacturers from offeringdiscounts directly to retailers. Manufacturers are still allowed todiscount the price they charge their wholesalers, but most cigarettemakers have resisted that approach, preferring to deal directly withretailers to make sure the discounts they offer get passed along toconsumers and to gain greater control over how their product ismarketed on store shelves.
Ryan said Massachusetts is the only state interpreting its fairpricing law in this manner. He warned it would spur Massachusettssmokers to buy their cigarettes across the border in New Hampshire oron the Internet.
"This is going to have a very dire effect on retailers," he said.
Revenue Department officials, who were unavailable to commentyesterday, earlier this month said there was no hidden motive intheir ruling on retail discounts. They said they were merelyenforcing a law on the books and it was pure coincidence that theruling coincided with the Legislature's push for a 75-cent-a-pack taxhike to help balance the budget. Many antismoking advocates hopehigher cigarette prices will spur smokers to kick the habit. Bruce Mohl can be reached at mohl@globe.com.
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