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Cigar stores brace for big federal tax increase

Cigar stores, already hurt by a shaky economy, are bracing for a huge federal tax increase next month that they fear will further dampen sales.

Large cigars will be taxed at 40 cents per cigar starting April 1. That is up from a nickel per cigar but below a $3- to $10-per-cigar tax that Congress had considered.

A good 5-cent cigar, if there is such a thing, would nearly double in cost to 9 cents under the tax increase on small cigars.

“Politicians go after sin taxes rightly or wrongly; that’s what they’ve always done,” said Michael Jaye, owner of Oggie’s Cigars in northeast Phoenix.

In early February, Congress approved the tax increase on cigars and other tobacco products to raise $35 billion for health care for uninsured children.

It is a tax increase that could not come at a worse time for the cigar industry, which produces 6 billion machine-rolled cigars and 333 million handmade cigars, according to industry estimates.

Customers are going to react to the tax increase by trading down to lower-priced cigars, said Jaye.

Lawmakers have often used so-called sin taxes on tobacco, alcohol and other stigmatized products to raise revenue.

In this case, cigar-shop owners and industry officials say they are not opposed to state-sponsored health care for children, but they complain that smokers are being unfairly singled out to fund the program.

Schwartz, of Ford and Haig, questions taxing a declining industry, which over time will mean less revenue for children’s health care.

Chris McCalla, legislative director for the International Premium Cigar and Pipe Retailers Association, said it would make more sense to tax candy and soda because of the growing problem of childhood obesity.

The association represents 2,000 members worldwide.

Tobacco is an easy target for lawmakers to go after because smokers account for only about 20 percent of the U.S. population, McCalla said.

Now, with smoking bans, cigar shops and lounges have become like old-fashioned barbershops, where a mostly male clientele can enjoy camaraderie and fine cigars, a relatively affordable luxury item.

“People think of rich bankers and attorneys when they think of cigars,” McCalla said.

“That’s the biggest misnomer. There is wide demographic of cigar smokers that will be affected by the tax increase.”


Tax increases

Federal taxes on cigars and other tobacco products will increase April 1 to raise $35 billion for children’s health care. The increases include:

• Cigars: From 5 cents to 40 cents per cigar.

• Cigarettes: From 39 cents per pack to $1.01.

• Roll-your-own tobacco: From $1.10 per pound to $24.78.

• Pipe tobacco: From $1.10 per pound to $2.83.

• Chewing tobacco: From 19 cents per pound to 50 cents per pound.

Source: U.S. Department of Treasury

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