The Tobacconist in Crisis Mode...
With every passing day, it becomes news of either the Federal Government or a state somewhere, continues to profoundly exhort their fiscal irresponsibility on the backs of the smokers in this country. The most recent horrific news comes out of Utah, where the state legislators put forth a bill increasing the state tobacco tax on cigars from 35% to 86%, with no cap. The governor, Gary Herbet did not veto nor did he even sign the bill, thus allowing it to become law after so many days even without his signature. This spineless politician, who is a republican, took the chicken "stock" way out thus being able to say, he didn't sign it so it is not his fault. Not only is this an outrageous tax, which is levied on only 9.2% of the population of Utah (only 9.2% of the people smoke in Utah) but it also comes with a floor tax. A floor tax is levied on a retailer or wholesaler's inventory on hand at the time the tax takes effect.
This new law has already claimed one causality; Jeanie's Smoke Shop in downtown Salt Lake, the oldest tobacconist in Utah will close its doors in June. Read the article in the Salt Lake Tribune here. And, for further reading, an article about the Utah tobacco tax in the New York Times.
Our Tinder Box franchisees Fred & Joan Cvar in Murray, a suburb of Salt Lake City are also in a crisis, while not ready to lock their doors and walk away after 40 years, they are having to sell off inventory at a loss to not have to pay the floor tax that would be due when they take the physical inventory of the products on hand July 1. We're talking possibly $20,000 to $25,000 just in a floor tax here folks.
This taxation land grab started flourishing last year after the Obama Administration signed into law, immediately after taking office, legislation that not just extended but expanded the SCHIP legislation. This legislation, (that President Bush vetoed twice) increased the excise tax on all tobacco products. This increase amounted to a 700% increase on premium cigars. It was open season now on tobacco products in all states.
The problem with Utah is they supposedly have already spent the "expected" monies, some $44 million dollars. Expected. It won't be there. With retailers and wholesalers dumping inventory, stores closing, smokers quitting and/or buying out of state, I am sure the lawmakers will be sitting at their desks scratching their head, wondering where their money is. It just doesn't work.
Hopefully, cigar makers are watching what is happening in this country as demonstrated recently by Perdomo Cigar. They just announced a price reduction and will be absorbing the SCHIP tax thus reducing the retail price to the consumer on 3 major brands. You can read the letter from Nick Perdomo Jr. to cigar smokers on their website bulletin board. Perdomo Cigar Bulletin Board Posting from Nick Perdomo Jr.
Hopefully we'll see other manufacturers following Nick.
No state has the gonads to belly up to the taxation bar and ban shipping of tobacco products into their state at the same time. Add to that the frustration at the Federal Government for placing restrictions on shipping of cigarettes, but exempting cigars! Sure, if you have a big internet cigar company, you are lobbying to always have cigars exempted so you can ship "tax free" across the country.
There is one huge problem with this that the average cigar smoker who buys online doesn't get. Even though you are boasting you bought that Arturo Fuente 50 bucks a box cheaper on the net, you still owe your state the sales tax and the OTP (other tobacco products) or "use" tax on the items you bought. Your state will be calling upon you one day. Have your checkbook ready. If you are going to buy off the Internet, buy from a tobacconist in your state. I know many of my fellow brick and mortar tobacconists have internet sites as do I. But when you buy from a mom and pop, you just might be saving another generation of business for them and remember too. As your state cries out for money, you buying your smokes from an Internet site from some guy's garage in Vermont, you are contributing to the crisis, not the fix. And the poor people of Vermont do not even benefit from your purchase. Even the Feds shy away from placing a tax on the Internet. Why? Ya know, they should tax toilet paper. Everyone has to use it at some time in their life.
Of course, states will realize that the tobacco cash cow will eventually go dry. All of those anti-tobacco zealots who are laughing at us now, just wait till they go after your mocha cappuccino, your bottled water, your Kool Aid and your Big Mac. You are next. I am an advocate of having an Internet Free Day; a day where no one buys anything off the internet unless it is from a company in their own state. No one buys cigars or tobacco products online. They take a drive down to their local tobacconist, shake hands, talk, exchange a few jokes, talk about each other's golf game and enjoy the personal interaction. If everyone did that, can you imagine how many brick and mortar tobacconists might be saved? States would see an increase in their sales and tobacco tax revenue and this fiscal Armageddon we have been put into might be relieved somewhat.
The tobacconist has really no one to fight for them in all these situations other than getting into the ring themselves. Our trade organization has a difficult dilemma with fighting for a face to face law as that would be deemed as anti tobacco and many stores do a mail order business from their stores. Our customers love us, but if they can get their smokes cheaper online, they are not going to vote themselves a price increase. And in most states, you would hope that our legislators would understand the impact of the laws they pass, but in Utah and with Sen. Allen Christensen, I guess not as demonstrated in the quote below.
Sen. Allen Christensen, R-North Ogden, who fought for years to raise Utah's tobacco tax, said he understood that distributors would have to pay the bill, not retailers. But Charlie Roberts, Utah Tax Commission spokesman, said retailers indeed must pay the higher tax and yes, it will come due when the law takes effect this summer. "If that's the way it is, then so be it "I'm sorry for some of the businessmen the law will impact, but they're selling a deadly product."
The soapbox is now vacant. Your turn. Drop me an email with your thoughts, anger and frustrations over these taxes. We'll get them to the right people.
