Tobacco Tax 101

**DeeDubya** · 03-13-2009, 10:38 AM

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** · 03-13-2009, 10:41 AM

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

**FactoredReality** · 03-13-2009, 10:53 AM

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** · 03-13-2009, 12:27 PM

Originally Posted by 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?

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** · 03-13-2009, 03:29 PM

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** · 03-14-2009, 08:53 PM

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** · 03-14-2009, 08:59 PM

...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** · 03-14-2009, 09:07 PM

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.

**bigwhiteash** · 03-14-2009, 09:40 PM

It's just another expense in a basically expensive lifestyle.. Once the sticker shock of the additional costs fades, things will be back to "normal". I already do quite extensive comparison shopping before a box purchase, as I'm sure most do... 15 to 20 dollars isn't really going to deter me all that much. I guess what it will hurt the most is the everyday cigars in the 3 to 5 dollar range.. I'm not going to like paying more than $100.00 for a box of Chateau Fuente Sun Grown.

What bothers me most is the ease with which this bill was passed, and the surety that there will be others lining up behind it.

**craig** · 03-15-2009, 12:30 AM

Originally Posted by bigwhiteash

It's just another expense in a basically expensive lifestyle.. Once the sticker shock of the additional costs fades, things will be back to "normal". I already do quite extensive comparison shopping before a box purchase, as I'm sure most do... 15 to 20 dollars isn't really going to deter me all that much. I guess what it will hurt the most is the everyday cigars in the 3 to 5 dollar range.. I'm not going to like paying more than $100.00 for a box of Chateau Fuente Sun Grown.

What bothers me most is the ease with which this bill was passed, and the surety that there will be others lining up behind it.

Yup. You have to realize that money for children's health care or whatever has relatively little to do with the tax increases - it is all about forcing people to cut down on, or quit, tobacco use. Raising prices is one of the most effective ways to accomplish that. The target is cigarettes, but, for effective tobacco control, one wants to raise prices of cigars enough so that cigarette smokers won't migrate to cigars in large numbers. That's why little cigars and drugstore cigars are getting (relatively) nailed. You, Mr. White Owl smoker

, are being targeted.

**MasterCylinder** · 03-15-2009, 04:04 AM

Originally Posted by craig

Yup. You have to realize that money for children's health care or whatever has relatively little to do with the tax increases - it is all about forcing people to cut down on, or quit, tobacco use. Raising prices is one of the most effective ways to accomplish that. The target is cigarettes, but, for effective tobacco control, one wants to raise prices of cigars enough so that cigarette smokers won't migrate to cigars in large numbers. That's why little cigars and drugstore cigars are getting (relatively) nailed. You, Mr. White Owl smoker

, are being targeted.

Just an aside point (I'm feeling the need to vent...). This is all so frustrating because the United States was practically founded on the growth and use of Tobacco. We probably wouldn't be the nation we are today if it weren't for this plant. Even the column capitals inside the houses of congress are designed to look like tobacco leaves in honour of the crop's importance to the founding of the nation (I think the other one you see is corn...). Government, OUR EMPLOYEES, need to back off!

Okay... I'm done now.

**BunkyX** · 03-15-2009, 05:48 PM

O.K., I don't usually get political, but this hits me where it hurts. So let me run this scenario by all of you.

They raised the tax on Tobacco to fund the S-Chip (and supposedly to reduce the number of Americans that smoke). Now the bean counters in Washington have come up with a dollar value on the revenue this will make to fund S-Chip. So now people quit smoking, or quit smoking at least as much, people die (not necessarily by smoking), and young people never start smoking because of the expense and stigma we all put up with. The revenue starts to not meet projected amounts, Washington needs more money to fund S-Chip. What do they do? Raise the tobacco tax again? and again?

We all need to stand up for our minority rights, as smokers. I have figure that they have already reduced the places I can smoke by 60% at a minimum. We are looked at by the 80% of poeple, who don't smoke, like lepers or worse.

The old tip of the Iceberg anology comes to mind. We could have prevented this but we were too busy sitting back on our laurels hoping somebody else would do it for us. There is more to come and if we don't stand up in force we will lose again.

Gene

**bigwhiteash** · 03-15-2009, 06:02 PM

Again, not to get too political..

There was no preventing this, and it could have, and will be worse in the future. Tobacco users are a shrinking minority, and as such will never carry the weight needed to stop these actions. I have quite a stockpile of pipe tobacco... probably enough to last me 10 years, and cigars that would last about 2 years if I quit buying them entirely.. which I don't intend to do. I would imagine, with decreased sales due to taxes, manufactures and vendors will eventually be forced to lower prices to remain competitive. We'll see....

The folly of health care funding derived from taxing the ever decreasing use of tobacco is sheer lunacy in my mind. It's entirely unsustainable

I sent letters, (emails), to every political figure imaginable, as I'm sure most of us did.. obviously to no avail... There was no stoping this.

**craig** · 03-15-2009, 07:21 PM

FYI: http://www.reuters.com/article/domes...090315?sp=true

Anyhow, stock up on small cigars and daily smokes now. Normally, I spread purchases throughout the year, but I blew my whole 2009 cigar budget in Jan/Feb. I would've bought even more if I had more spare cash ...

**DeeDubya** · 03-16-2009, 08:23 AM

Originally Posted by bigwhiteash

Again, not to get too political..

There was no preventing this, and it could have, and will be worse in the future. Tobacco users are a shrinking minority, and as such will never carry the weight needed to stop these actions. I have quite a stockpile of pipe tobacco... probably enough to last me 10 years, and cigars that would last about 2 years if I quit buying them entirely.. which I don't intend to do. I would imagine, with decreased sales due to taxes, manufactures and vendors will eventually be forced to lower prices to remain competitive. We'll see....

The folly of health care funding derived from taxing the ever decreasing use of tobacco is sheer lunacy in my mind. It's entirely unsustainable

I sent letters, (emails), to every political figure imaginable, as I'm sure most of us did.. obviously to no avail... There was no stoping this.

I don't mind contributing to a worthy program like the Childrens Health Insurance. Now if we could just deduct this added tax as a contribution I would gladley pay the increase. They would still get the money, the deterrent to smoking because of higher tobacco prices would still have it's effect and we would get a deduction to lighten the extra cost.

**golfermd** · 03-16-2009, 09:37 AM

What we will probably see is the death spiral with taxes like they see in many urban areas. Higher taxes means higher costs of doing business so businesses eventually move to more tax friendly locales to reduce their operating costs. This lowers revenues. In order to again raise revenues they increase the tax rates, which drives more businesses away, causing lower employment, loss of tax reveneues, and higher municipal costs to absorb people displaced by businesses moving out. Am I missing something here? Politicians, gotta love 'em...

**Artyman1200** · 03-16-2009, 12:42 PM

Tax those evil smokers to fund the health insurance program for all those poor little children! Our government is such a freakin racket...

**BurnDownKing** · 03-16-2009, 02:54 PM

Just another bump in the road like rising gas prices or inflation of bread prices. It will all be ok in the end and in a year no one will remember what happened until the next rate increase happens. If you're going to quit smoking a cigar because of a tax rate increase and you can't afford it, you should probably be finding something you can afford to do. :)

I will do my part, however, and stock up before the tax hike kicks in. My cigar shop said we can buy as much as we want and he'd store it for us and figure out where to put it after the fact if we couldn't bring it all home, so at least he's helping us out in that aspect.