J.R. ‘fearful’ over tax hike

Raleigh News & Observer
Cheaper cigarettes could lure discount retailer’s customers to other states

By PEGGY LIM, Staff Writer

SELMA — J.R. Tobacco’s red, white and blue billboards along Interstate 95 yell at drivers: "Warning: Lowest Prices on Earth!" "Discount Cigarettes." "Lotsa Neat Stuff 4 Cheap." "Get off now!"

The company, which bills itself as the largest cigarette dealer in North Carolina and the world’s largest cigar dealer, has about 100 signs along the interstate near Selma. They draw about 2 million cars each year to the company’s Selma store, J.R. Discount Outlet, according to J.R. officials.

J.R.’s business has done so well in Selma that the company expanded, opening stores in Statesville in 1993 and Burlington in 1998. Not only are the company’s three outlets in the state, but North Carolina also is the home of its mail-order cigar business and warehouses.

But as the state tax on cigarettes increases — from a nickel a pack now to 30 cents a pack in September and 35 cents a pack in July — some in Johnston County fear J.R. will lose customers and flee North Carolina.

Advocates of the tax increase say it will help fill a hole in the state’s budget and pay for rising health-care costs. But it also means that North Carolina will be surrounded by states with lower cigarette taxes.

J.R. officials say they aren’t planning to relocate yet but are concerned about the impact of the tax increase.

"We’re fearful," said Luther Starling, a Smithfield lawyer and J.R.’s lobbyist. "We don’t know what the effects are going to be."

Some J.R. customers, such as Colby Cain, 29, an iron worker from Maryland, say the higher tax will push them to other states, where cartons will be $4 to $6 cheaper. Cain, who has visited J.R. six times in the past two years, said he will probably stock up in Virginia, where the tax is 30 cents a pack, or South Carolina, where it is 7 cents.

"I’ve even driven 40 to 50 miles to Virginia to get a discount from Maryland," said Cain, who stopped Tuesday at J.R. on his way to visit his mother in Myrtle Beach, S.C.

J.R. plays an important role in Johnston’s tourism. Combined with the Carolina Premium Outlets just minutes away in Smithfield, J.R. has helped make outlet shopping the No. 1 attraction in the county, said Doug Fisher, communications manager for the Johnston County Visitors Bureau.

The Selma outlet contributes about $2 million a year in state and local tax revenues from cigarette sales alone, company representatives said.

Losing that revenue, related sales and about 300 jobs that J.R. provides could be devastating, said Linwood Parker, chairman of Johnston County’s economic development advisory committee. "This is the worst thing that could happen," Parker said. It would be comparable to a plant closing, he said.

Transformation

In 1990, the company moved to Exit 97 from New Jersey, after that state passed a 24 percent tax increase on cigars and other tobacco products, Starling said.

Kentucky had a lower tax, and South Carolina’s rate was not much higher, but the company liked the Selma location — about midway between Florida and New York on I-95 — and the quality of the work force in North Carolina. J.R. spent millions refurbishing a dilapidated strip mall and saved three flagging hotels by putting employees and customers in them, Starling said. Restaurants and motels followed.

"It transformed the whole area," said Rick Childrey, president of the Greater Smithfield-Selma Chamber of Commerce.

Employees at other businesses that cater to travelers say they could be affected if J.R. loses customers or moves. Nachhatter Sandhu, owner of the nearby Savannah’s Discount Gas, said he’s watching to see what happens.

"They’re traveling," Sandhu said of many of his customers. "So if another state has a cheaper tax, they’ll stop in the next state."

Originally, J.R. did not sell cigarettes. But so many customers requested them, the company started stocking them. And discount cigarettes, the company discovered, were a surefire way to pull people off the highway.

Attracting shoppers

Heavily discounted cigarettes aren’t a big profit-maker for J.R., managers say, but they lure lots of customers to check out the store’s other items, such as Cuban cigars, NASCAR jackets, gardening supplies, colognes, Biltmore wines and flip-flops. The store’s large selection of wacky items draws even nonsmokers looking for a fun break from driving.

Joanne Juechter, a professor at City University of New York, recently stopped with her daughter and grandchildren en route to Wrightsville Beach. They held a $10 contest to see who could find the tackiest gift.

Some area residents, such as Lisa Pilkington, a short order cook from Selma, frequent the store as often as once or twice a week. Pilkington, 33, was at the store Tuesday to buy Winstons for her mother, who goes through four or five cartons a month. She said she would return in a few days to buy Marlboro Lights for her boyfriend and herself.

But most of the store’s customers are travelers. According to credit card receipts, 89 percent of customers are from other states, Starling said. Some are one-time or occasional shoppers. Others, regulars.

Independent truck driver John Edmonds, 56, of Homosassa, Fla., buys about $500 worth of cigarettes a week at J.R. He has visited the store weekly since it opened 15 years ago. Edmonds purchases cigarettes for friends and employees at a Maryland truck stop to "save ’em a few bucks."

April Collins, 48, passing through from Bronx, N.Y., said a friend called "Sho Nuff" frequently travels to Selma to buy cigarettes and resell them on the streets of New York. The retail price at J.R. is about half that in the Big Apple.

Vincent Gargiulo, 70, a Florida snowbird heading back to Staten Island, N.Y., regularly buys more than $800 worth of Marlboros and Benson & Hedges for family members.

"I’ve got a brother who smokes like a fish," he said.

Staff writer Peggy Lim can be reached at 836-5799 or [email protected].