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Stogie News: California Taxin’

8 Jun 2010

What may be the strangest cigar news in recent weeks came from California. The state with the most anti-smoking laws in the country and a staggering budget shortfall estimated at more than $26 billion is actually lowering its tax on cigars.

It’s not a huge cut—41.11% to 33.02%, to be exact. And, since its paid by distributors, the reduction may not even be noticeable by the time the retail price is set. But, hey, in this economy anything helps, right? Of course, it’s hard not to wonder why: Why would the state cut cigar smokers and users of tobacco products other than cigarettes a break?

Well, it turns out there was no choice. “The formula demands it,” said Anita Gore, spokeswoman for California’s five-member Board of Equalization tax panel that approved the change without discussion at a May meeting for July 1 implementation.

Gore explained to me that the rather arcane requirements of state tax law are based on the cigarette tax. (For tax purposes, she said, California recognizes only two categories: cigarettes and other tobacco products.)

The state law requires that the tax percentages on other tobacco products match that levied on the wholesale price of a single cigarette. So, with cigarette prices going up and the per-pack tax remaining the same, the percentage drops. And that means the percentage applied to other tobacco products must be lowered as well. Necessary adjustments are made annually.

Gore said that the tax for other tobacco products is levied on the value of whatever amount the distributor buys, whether it’s a truckload or a single stick. Remember, at that point cigar prices are often half or less than retail.

I’m not sure it’s fair that cigar smokers are paying less simply because cigarette smokers are paying more. But that’s the way it is, at least in the Golden State.

George E

photo credit: Stogie Guys

Drew Estate

5 Responses to “Stogie News: California Taxin’”

  1. Mike Tuesday, June 8, 2010 at 6:34 am #

    Actually, it's a pretty big cut — almost 20%. And that brings California's OTP tax closer to the national average. Because of that formula, it has been trending down for a while now.

  2. George E. Tuesday, June 8, 2010 at 10:06 am #

    Mike – Yes, the percentage is fairly high, but in terms of dollars and cents it's not a lot. On an $8 retail cigar, for instance, you figure the tax will be applied at about $4. That means a savings of roughly 32 cents in tax (if it isn't being included in the total the retailer keystones). But as I said, anything helps these days!

  3. Mike Wednesday, June 9, 2010 at 5:01 am #

    True enough. That's also why increases in OTP taxes have to be pretty high for them to really be noticed. I don't like any cigar tax hikes, but going from 20% to 32% of wholesale (as my state of Michigan did a few years ago) is not going to shock most people just buying 1 stick.

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