Cigar industry say proposed tax would torch business

Wednesday, July 25, 2007 at 1:23am

Local cigar shops are saying a U.S. Senate proposal that would skyrocket the cost of retail cigars would put them out of business. And one member of Tennessee’s Senate delegation is lining up behind them.

The new tax proposal would increase the federal tax on cigars from the current 5 cents each to 53 percent of the manufacturer’s price to a distributor, with a cap of $10 tax per cigar.

In an oft-quoted example, a cigar that retails for about $4 now could jump to around $14, once the new federal tax is added and existing state taxes and profit margins are worked in.

“It’s completely unreasonable,” said Scott Partridge, manager of Uptown’s Smoke Shop on Hillsboro Road.

“It’s one thing for an industry to pay their fair share, or even more than their fair share,” said Partridge. “But this would put most cigar shops across the country out of business.”

The new tax would be part of the funding for an additional $35 billion per year to be spent over the next five years on the State Children’s Health Insurance Program (SCHIP), a grant program that gives federal money to states for medical coverage for low-income children.

The vast majority of the new funding, however, would come from a $1 tax per pack on cigarettes, which is now 39 cents.

The proposal has already passed the tax committee in the Senate and should end up in a floor vote either later this week or early next week.

Tobacco industry insiders said the proposal, backed by members of both parties, should pass the Senate, although its prospect in the House is less certain. President Bush has said he would veto the measure, in part because of the increased taxes on tobacco.

Tennessee’s senior senator is lining up on the side of cigar retailers and smokers, if not the cigarette industry.

Lee Pitts, press secretary for U.S. Sen. Lamar Alexander, R-TN, said Alexander “thinks the proposed tax on cigars is ridiculous.” And Alexander does smoke an occasional cigar, Pitts said.

“[Alexander] says it just goes to show that there are people in Washington who’ll try to tax anything,” said Pitts.

Laura Lefler, press secretary for U.S. Sen. Bob Corker, R-TN, said the senator was still studying the proposal.

“Our focus now is on what the appropriate funding level for the SCHIP program should be and after determining that, we’ll then focus on how revenues, if any are necessary, should be generated,” said Lefler.

The potential of the bipartisan measure eventually passing still has many local cigar professionals lit up.

Tim Ozgener is president of cigar maker CAO Cigars in Nashville, which is entering its 30th year of cigar business in 2008. He said the measure is “particularly punitive on large cigars.”

Ozgener said that the potential tax increases upon the $83 billion annual retail cigarette industry and the $3 billion annual retail cigar industry couldn’t be seen as similar.

“I don’t like cigarettes, and I don’t smoke cigarettes. They’re simply a method for nicotine delivery,” said Ozgener. “But when you ferment tobacco, as in cigars, you have a lot of the tar and nicotine evaporate. It’s not all gone, but then you’re not supposed to inhale cigars either.”

“My whole thing is just to separate it from the cigarettes. It’s not an apple-to-apple comparison,” said Ozgener.

And besides putting “mom-and-pop retailers” out of business, Ozgener said that the effect would be even worse in third-world countries in Central America, South America and Africa. That’s where cigar tobacco is usually grown, cut, fermented and rolled, often for eventual shipment to the U.S., the world’s largest cigar market.

“It would make a lot of poor people in those countries even poorer,” Ozgener said. Finally, he said, the tax would inevitably increase the black-market for cigars.

Filed under: City Business
By: idgaf on 12/31/69 at 6:00

This subject aside we had better get spending under control before they run out of thing to tax or they tax them out of existance.The Federal Government is spending far to much on things that they shouldn't be involved in such as halls of fames and bike paths.

By: imdyinhere on 12/31/69 at 6:00

It's been over 4 weeks since I've had a smoke, and these taxes are why. Not that I can't afford a cigarette tax hike, but because of the laughter I'll get when the State and Fed need to find another social outcast group to go after, rather than face the unpopular move of spreading a (needed) tax around fairly.

By: Tinsoldier on 12/31/69 at 6:00

I hear that movie theatre buttered popcorn is the next untaxed victim on the list. After that, Big Macs and Whoppers are next! Oh! And don't forget poker machines at the nearest corner pub!

By: Gusdog on 12/31/69 at 6:00

As an occasional cigar smoker, I don't mind paying a bit more for what is basically a luxury item. But this tax proposal is ridiculous. Talk about killing the goose that lays the golden eggs...

By: caholt on 12/31/69 at 6:00

How stupid do the lobbyists and cigar dealers think the average person is? As noted in the article, the current tax is $.05 each. The new tax would be 53% of the manufacturer's wholesale price to the distributor with a cap of $10.00 per cigar.Then, to flame the fires of rightious indignation from smokers:" In an oft-quoted example, a cigar that retails for about $4 now could jump to around $14, once the new federal tax is added and existing state taxes and profit margins are worked in." This example is rediculous. In the real world, I doubt that the wholesale cost on a $4 dollar cigar is more than $1.50, which means that the new cost after taxes would rise from $1.55 to $2.295 and then profit margins and state taxes would be worked in. It is concievable that a greedy retailer would try to increase his profit margin and use this new tax as an excuse, but all things being equal, I think it is high time that the cigar industry pay it's fair share. The current tax of $.05 per cigar is absurd when you look at how much money is spent on cigars. As a reformed smoker (30 year habit), I think it is time for this addictive carcinogenic plant product to go the way of the dinosaur. Anyone who thinks that he smokes for 'enjoyment' is living in a dream world.

By: revo-lou on 12/31/69 at 6:00

I think most of you have missed the “Big Picture” here! Do any of you not find the ironic humor in a cigar story right below the Clinton coming to town story! Come on have a little fun in life!

By: flipflop on 12/31/69 at 6:00

If passed and signed, this will open up a black market that the government will not be able to police. They just don't have the manpower.The Law of Unintended Consequences is something few politicians every consider.Considering how many jobs this will cost the economy is only part of the story. Business and personal taxes revenues will decline as people are forced out of business and employment. Increases in unemployment will force more government payments to those individuals.Anyone here remember the "brilliant" luxury yacht tax and the results of that fiasco?

By: robert fuqua on 12/31/69 at 6:00

Federal and State Taxea benefit all citizens.The only resason that they tax tobacco products is that they can get the money with fewer complaints about the tas.I wonder if they would get the tax if they taxed candy and soda pops?Taxes that benefit all should be paid by all.

By: Gusdog on 12/31/69 at 6:00

caholt - I agree that the math is bad, but I guarantee you that a cigar that sells for $4 retail costs more than $1.50 wholesale. I used to work in a couple of smoke shops, and we had pretty good relationships with the other local shops, and no one (except bars and restaurants) sold cigars for even 100% over wholesale, much less the 167% you figure."Anyone who thinks that he smokes for 'enjoyment' is living in a dream world."I smoke about 6 cigars per year, give or take a couple. So if I'm not smoking them for enjoyment, what am I, an addict? Have a nicotine fit every two months without one? I don't even inhale.Now I will smoke a (tobacco) pipe as well, but again, I'll go weeks without it. Again, why is it I'm smoking?That's great that you beat your addiction. But your addiction doesn't make me an addict. I know alcoholics that believe that alcohol should be banned, and that even those of us who have a drink or two per week are just addicts in denial as well. Please. Not everyone is you. And while it wouldn't bother me in the least for cigarettes to go away, I don't think banning tobacco would be in anyone's best interest.

By: Gusdog on 12/31/69 at 6:00

Also:"The current tax of $.05 per cigar is absurd when you look at how much money is spent on cigars."While I wouldn't mind if the $.05 was increased, that's only the federal tax. There is state tax, and I don't know what the current rate is there. Then there's sales tax, which is 9.25% of the total cost (including the state and federal tax). And the income I use to buy a cigar is also taxes by Uncle Sam, of course. I do think a $.61 federal tax increase per pack of cigarettes is also ludicrous, especially in light of the recent state tax increase. It doesn't affect me directly, but I still think it's wrong when more than half of the cost of a product is tax (as it is with cigarettes and liquor). But the _total_ federal tax on cigarettes would be $.05 cigarette, if this passes ($1 tax on 20 cigs).

By: Gusdog on 12/31/69 at 6:00

Should read: "And the income I use to buy a cigar is also taxed by Uncle Sam, of course."

By: on 12/31/69 at 6:00

Let them know you are opposed to this tax