Tobacco Tax 101

[DeeDubya]

http://www.ttb.gov/main_pages/schip-summary.shtml (TT Table)

From what I can tell this means that the least expensive cigars will take the biggest hit. Take a box of AF Classics that costs $100.00. If the 52.75% tax is applied the box would cost $152.75, however, a maximum of $0.40 per stick x 25 would limit the tax to $10.00. Is this right or am I missing something?

[ashauler]

I think the limit of .40/cigar would apply, but I'm no expert. This is just what I understand from reading.

[FactoredReality]

From what I understand it basically means a $0.40 price increase on each cigar. This really isn't that bad if you consider that the roll your own tobacco gets hit with $24.78 per pound.

[craig]

http://www.ttb.gov/main_pages/schip-summary.shtml (TT Table)

From what I can tell this means that the least expensive cigars will take the biggest hit. Take a box of AF Classics that costs $100.00. If the 52.75% tax is applied the box would cost $152.75, however, a maximum of $0.40 per stick x 25 would limit the tax to $10.00. Is this right or am I missing something?

You may be missing that federal tax is applied at the wholesale level. Most B&M's keystone (double the wholesale price). So:

Old price: $100 box (before state taxes). Assuming keystoning, this implies (guess) an old wholesale price $50, of which $1.22 was tax. So, the old wholesale price net of old tax is $50 - $1.22 = $48.78.

New wholesale price is $48.78 + $10.06 new tax = $58.84
Add back keystone to get $58.84 x 2 = $117.68 new retail price (plus state taxes)

Note, however, that there is no floor tax, so all the cigars in the B&M on March 31st shouldn't change in price. Perhaps one will learn a bit about the business practices of one's local B&M in the next few months. I wouldn't be surprised if most stores do an across-the-board increase on April 1 for all cigars for less than the full tax, and work up to the new rate over the rest of 2009.

What is perhaps funny (for Americans) is that the Cubans have raised their prices in Canada as of March 1st by a similar amount .

[DeeDubya]

Thanks,
That's better news than I expected. But since the Federal tax will be applied at wholesale then we will actually be paying our state/local taxes on top of the Federal tax. That sucks.

[hex1848]

I got the first round of price increase notices from the manufacturers this week. Not only did I get hit with the ~.40 cent tax per cigar, but apparently the cost of bulk tobacco is going up, so some of my best sellers are going up $13 a box of 25. My guess is that more people will be switching to 5 and 10 packs instead of box purchases.

[bigwhiteash]

...So that $13.00 increase is in addition to the .40 / stick tax, and only on box purchases?


Does that mean it will be cheaper to buy 5 fivers rather than a box of 25?

[hex1848]

That was $10 for the tax and $3 over that for the wholesale tobacco price increase, so ~$0.52 per stick. That may not be industry wide, I just noticed it from 2 separate manufactures last week.

I'm just thinking more people will be inclined to by smaller quantities of cigars when the keystone of a box will be going up $20 or more in some cases.