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Illinois cigarette and gas tax hikes could drive more business to Northwest Indiana

With the rise in gas and cigarette taxes in Illinois, it’s expected Illinoisans will travel more to Northwest Indiana for gas and other products.

The Northwest Indiana side of the Indiana/Illinois border is lined with gas stations and smoke shops that may see a jump in traffic because of the gas and cigarette tax hikes that take effect in the Land of Lincoln on July 1.

As part of a flurry of legislative activity that included a $45 billion infrastructure plan and the addition of a Chicago casino, lawmakers in Springfield voted to increase Illinois's state gas tax from 19 cents per gallon to 38 cents per gallon. Indiana's state gas tax is 29 cents per gallon. 

With local taxes added in, gas prices already are appreciably cheaper on the Indiana side of the state line. The gas price tracking website and app Gasbuddy.com estimates the average gas price in the Gary metro is $3.02 per gallon, while the average gas price in the Chicago metro area is $3.28 per gallon.

Many Illinois residents already travel to Hammond, Munster, Dyer and other border towns to fill up their tank, and that's likely to only intensify, GasBuddy.com petroleum analyst Patrick DeHaan said.

"It's nearly guaranteed to drive business to Indiana, especially for weekend travelers headed into Michigan from Illinois, filling up both on their way out and before they get home," he said. "There aren't a significant amount of stations on the Illinois side of the Indiana/Illinois border, but those within a mile or two will struggle, especially other borders like Illinois/Missouri as well. Drivers that shop around will find easy savings by going into Indiana, and that will likely lead to a loss in gallon sales for Illinois."

Illinois Petroleum Marketers Association/Illinois Association of Convenience Stores Executive Vice President William Fleischli said the tax hikes will be devastating to Illinois gas stations.

"Borders will become wider and our customers will cross them to buy motor fuel, cigarettes, and other ancillary items, costing the state tax dollars and companies profits," he said. "Our motor fuel volumes will go down 2% to 3% a year for about three years then start to recover. Inside sales will go down 10% to 12% and may never recover."

Truckers are especially likely to fill up in Indiana instead of Illinois, he said.

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"With a 45.5-cent tax on diesel, truck stops will be crushed," he said. "The gas station convenience store industry in Illinois is on the endangered species list."

Valparaiso-based convenience store chain Family Express does not expect to see any material change in business since it does not have any locations along the state line. But CEO Gus Olympidis said Illinois residents already are acclimated to hopping into Indiana for cheaper gas.

"Already, there is an excise tax differential that is sufficient for stimulating consumer migration to Indiana along the border," he said. "I am not sure that a greater differential will change anything."

Starting next month, Illinois also will impose an additional $1 per pack cigarette tax, on top of its current rate of $1.98 per pack and Chicago's cigarette tax of $7.17 per pack, which is the highest in the nation. And it will impose a 15% tax increase on e-cigarettes, potentially driving more business to Indiana vape shops.

The state also raised the age to buy cigarettes and other tobacco products to 21 years old, creating the possibility that Illinois residents between the ages of 18 and 20 will make pilgrimages to Northwest Indiana's many smoke shops.

Indiana now charges 95 cents in state taxes per pack of cigarettes. A proposal to raise it by $2 per pack failed in the state legislature this year despite support in the polls and the backing of the Indiana Chamber of Commerce.

Given the steep health care costs associated with smoking and the human toll, Olympidis said Indiana may however end up raising cigarette taxes in the next legislative session, potentially eating into or wiping out any relative cost advantage.

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Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.