Specialty tobacco retailers in Hawai'i are bracing for the ignition of a new state law on Wednesday that dramatically increases taxes on cigars, pipe tobacco and smokeless tobacco.

The tax hike, passed by the Legislature in May, will result in state taxes accounting for half or more than half the wholesale price of such tobacco products, with consumers paying for the hike in retail purchases.

The move comes on the heals of a federal tobacco tax increase that took effect in April, and was intended to increase revenue to the state in an effort to help balance its budget.

But the higher taxes are also expected to hurt sales for retailers already suffering in the bad economy by curbing smoking for some consumers or leading them to buy tobacco elsewhere.

"It's going to kill us," said Diane Chow, manager of Kipuka Smoke Shop in Hilo.

Taxes on smokeless tobacco and pipe tobacco will rise the most — from 40 percent to 70 percent. On a pound of pipe tobacco at Kipuka Smoke, the tax paid would rise from $1.09 to $2.83, Chow said.

The tax on cigars will rise from 40 percent to 50 percent of the product's wholesale price, adding $5 to the price of a $10 cigar.

Joe Hilton, owner of Cigar-Cigar Etc. in Honolulu, said raising the tax to the 50 percent level will lead significantly more customers to buy cigars from out-of-state sellers or on the local black market.

All they're doing is pushing more people (away from Hawai'i stores)," he said, adding that Hawai'i's 40 percent tax on cigars was already higher than nearly all other states.

Another piece of the new law taxes cigars that have roughly the same circumference of cigarettes at the same rate that cigarettes are taxed, which is 13 cents per cigarette.

The state estimates that the additional taxes will add $3.2 million over two years to coffers, and $18.6 million over six years.

The increases, viewed by some as a sin tax, were a contentious issue at the Legislature earlier this year, with anti-smoking advocates including the American Cancer Society advocating for the tax increase, and businesses and trade groups such as the Hawaii Food Industry Association opposing the proposal.

One version of the bill that would have upped the tobacco tax to 85 percent this year and to 105 percent in 2011 led roughly 60 residents to submit a form letter that in part read, "Increasing the cost of smokeless tobacco will deter youth from using smokeless tobacco and ensure their chance at health."

A Kaua'i coffee farmer who also grows tobacco for locally made cigars produced a petition in opposition to the bill signed and submitted by about 30 people including visitors, retailers and local consumers.

Cigar-Cigar owner Hilton said he spent 10 days at the Legislature this year trying to convince lawmakers that the tax was wrong.

Gov. Linda Lingle vetoed the bill, House Bill 895, but lawmakers overrode her veto.

Because of unintended language in the bill, no taxes have been applied to the tobacco products since May 8.

Bracing for the resumption at a higher rate, Chow of Kipuka Smoke said she introduced coffee and tea to her small shop earlier this year, but the new product lines haven't helped much as the economic downturn has trimmed consumer spending.

"It's a tough one, a real tough one," she said, adding that a federal ban on flavored cigarettes that took effect last week eliminated clove cigarettes that had accounted for 20 percent of the shop's business.

Meanwhile, anti-smoking advocates are using the implementation of the higher state taxes as an opportunity to encourage smokers to quit the habit.

"Tobacco products are more expensive than ever before, which makes it a perfect time to quit," said Valerie Smalley, a quit coach for Hawaii Tobacco Quitline, which recently has run new public service announcements urging people to embrace a healthier lifestyle free of tobacco.

Julian Lipsher, program manager for the state Department of Health's Tobacco Control Section, said smoking costs a typical tobacco user $2,555 a year — money that she said could be better spent on other needs in the down economy.