Stogie News: Legislative Update, Rocky Patel on Cigar Taxes
26 Jan 2009
[Updated at 3pm Eastern with a response from Altadis USA.]
In a late addition to our last Friday Sampler, we reported the latest Senate version of SCHIP includes slightly higher cigar taxes than previously reported. Here are some other important updates on the cigar legislation front:
Rocky Patel: SCHIP Divides Handmade, Machine-Made Cigar Makers
This weekend StogieGuys.com spoke with cigar maker Rocky Patel for an interview that will be published in full here in the near future. One thing Rocky made clear is that, when it comes to SCHIP’s tobacco taxes, the different tax rates for premium handmade cigars and inexpensive machine-made cigars make it difficult to tell friend from foe.
According to Patel, some cigar producers that make both handmade and machine-made cigars, including industry giant Altadis, were willing to accept higher taxes on handmade cigars if it meant lower taxes on their cheaper, higher-volume, machine-made cigars. In his exclusive interview, Patel indicated a tax cap of 20 cents per large cigar or less (as opposed to the currently proposed 40.27 cents) would have been possible if not for resistance from those who sell machine-made cigars.
“The problem here is that in raising the revenue that Congress wants, they make 4.7 billion machine-made cigars, we make 300 million handmade premium cigars,” the famed cigar maker told StogieGuys.com. “So every time they pay an extra penny, it saves us a lot of money on the amount of cap that we pay on the handmade side. But they weren’t willing to go up a couple pennies so we could go down to twenty [cents per cigar].”
This issue is part of the reason why Patel strongly supports Cigar Rights of America, which he says will look out exclusively for the interests of premium handmade cigar smokers.
UPDATE: Janelle Rosenfeld, vice president of marketing premium cigars and corp. communications for Altadis USA, took issue with the way her company’s role in fighting taxes on premium cigars was portrayed by Mr. Patel.
“Unlike Mr. Patel, Altadis USA is the largest manufacturer of premium cigars and owns and operates its own cigar factories including the largest hand-made cigar factory in the world. We, in fact, have a much larger vested interest in the tax and cap than Mr. Patel. For him to suggest otherwise is inaccurate,” she said. “Altadis USA takes great pride in our quality premium cigars and is committed to our premium cigar retailers and consumers at every turn.” Rosenfeld also said that Altadis and other tradegroups had been instrumental in lowering the tax cap from its initially proposed amount of $10 to its current form of 40.27 cents.
FDA Regulation Coming with Exemption For Cigars
Likely to soon come up again in Congress—and likely to become law this time—is a proposal to regulate tobacco under the U.S. Food and Drug Administration. But the controversial plan hasn’t generated as much opposition in the cigar world as the SCHIP bill. That’s because its fairly far-reaching provisions, from prohibitions on adding flavors to restrictions on advertising and new brands, center almost exclusively on cigarettes.
Chris McCalla, Legislative Director for the International Premium Cigar & Pipe Retailers Association, recently told StogieGuys.com that cigars and pipe tobacco would not be subject to those sorts of FDA restrictions without further extensive action that isn’t expected any time soon. And while imposition of strict FDA regulation on cigars could be devastating to premium handmade cigars, some say it’s unlikely such action will ever happen.
Pipe Tobacco Versus Roll Your Own
Speaking of pipe tobacco, you may have wondered, as we have, about the SCHIP provision to boost the per pound federal tax on pipe tobacco from $1.0969 to $2.8311, while roll-your-own tobacco is increased from $1.0969 to a staggering $24.78 (creating a tenfold difference between RYO and pipe tobacco). What the heck makes tobacco RYO so different from pipe tobacco? Well, it turns out the answer is not much.
Federal definitions are vague, and right now it doesn’t matter because tax rates are the same. But when there’s change, what’s to stop RYO makers from just labeling their product pipe tobacco? According to a spokesman for the Bureau of Alcohol, Tobacco, Firearms, and Explosives, they don’t have an answer. “This is an issue that we recognize as being problematic should the legislation pass,†he said. When it does, the first thing the bureau will do is study the issue to see about tightening up those definitions.
photo credit: Stogie Guys
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That RYO tax makes me wonder if the cigarette manufacturers negotiated that as part of the deal in order to run the RYO companies out of business. That tax makes no sense without there being some ulterior motive.
I'll also say that, since they threw us under the bus, it would be nice to know which companies pushed for the higher taxes on handmade cigars. I'd like to slow my purchases of their products. Any others besides Altadis?
Thanks for this piece of information. Interesting, as always.
If you're interested in looking at the federal taxes on alcohol and tobacco in all their forms, take a look at http://ttb.gov/tax_audit/atftaxes.shtml
One of the most interesting aspects is that there's a provision in the beer tax that provides for significantly lower rates for smaller "craft" brewers. I've never heard this possibility raised for cigars, though it would seem to me to be a great solution to the problem Rocky points out.
This is the sort of source-driven, behind-the-scenes cigar reporting that I’ve only come to expect from the Stogie Guys. Well done. And given the information he already has, I’m really looking forward to reading that Rocky interview in full…
I recall reading a European Commission document that distinguished between fine-cut tobacco and pipe tobacco. They were working out a definition that would be adapted in order to better differentiate between pipe and fine-cut tobacco and avoid inappropriate taxation.
I believe the rationale was that fine-cut tobacco could not be distinguished from cigarette tobacco and would be used in the same way – inhaled into the lungs – which began the whole health issue in the early 1900s when cigarettes were first mass produced, while pipe tobacco had already been popular for many centuries without these ill effects.
I’m sorry now that I didn’t keep a copy of these documents, but it all seemed so obvious at the time that I didn’t bother.
But I do remember that they worked out a distinction that did treat fine-cut tobacco in the same way as cigarette tobacco as contrasted to pipe tobacco. I was glad to see that pipe tobacco was not being lumped together because it all came under the same word “tobacco”, hence discrimination by association.
Cigars, of course, also didn’t fit the definition of “fine-cut” tobacco.