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Debate over cigar tax smoldering in Pennsylvania

PITTSBURGH - Given the state's sinking revenue returns, makers and sellers of cigars worry this will be the year that the Legislature and the governor are finally able to win passage of a new tax on cigars and smokeless tobacco.

Foes of tobacco usage have the opposite concern - that the tax will again be sandbagged.

Cigars, snuff, pipe filler and other types of loose tobacco are subject to an excise tax in every other state, including tobacco strongholds North Carolina and Kentucky. But in Pennsylvania, attempts to place a "sin" tax on cigars and loose tobacco have been thwarted time and again by cigar-loving politicians, wholesale retailers, snuff manufacturers, convenience store lobbyists and a small but oddly powerful bloc of tobacco farmers from Pennsylvania's midsection.

Democratic Gov. Ed Rendell proposed a snuff and cigar tax in 2007, and the proposal was defeated. His Republican predecessor, Gov. Mark Schweiker, proposed the same with the same results.

When Rendell proposed the tax two years ago, Pennsylvania was one of just three states that didn't collect an excise tax on cigars, smokeless or both. Today, it is the only holdout.

Cigar purveyor Keith Meier wants it to stay that way. His company, Cigars International, moved to Northampton County a dozen years ago because there's no cigar excise tax here. It has grown into a $90 million company, the second-largest handmade cigar retailer in the United States, employing 150.

"That would all evaporate were we to swim to sunnier shores, such as Florida," the CEO said.

"Florida is a safer state because most of the industry is located there, and besides, it may make more sense for us to be there - close to others in the industry, close to our manufacturing partners in the Caribbean basin and Central America," which reduces shipping.

This year, Rendell pitched the tax anew in his budget address - 36 cents an ounce on loose tobacco and 36 cents per 10 cigars - and said it could raise $50 million in a full year.

The proposed tobacco tax was the subject of a Senate Finance Committee hearing last week.

"Pennsylvania is the only state in the nation that does not tax chewing tobacco, snuff or cigars, and our citizens overwhelmingly support a tax on smokeless tobacco, just as they strongly support increases in the state cigarette tax," the governor said in his budget address earlier this month. (Florida taxes snuff, but not cigars, because the cigar industry is big business there.)

Popular support aside, the governor can expect a fight from the usual suspects, said Sen. Jim Ferlo, D-Highland Park, who sits on the finance committee.

"This will certainly be a controversial, contentious issue," he said. But he also noted that there's an element of fairness at stake - cigarettes are already taxed at $1.35 per pack and the governor would like to increase that tax to $1.45, which Ferlo said he wouldn't vote for.

"It's continually unfair to always tax smokers of cigarettes" but not the smokers of those "fancy" cigars, he said.

Why have cigars and snuff enjoyed special status in Pennsylvania? Partly it's because of the state's historical role in tobacco production. At one time, it was one of the top three tobacco producing states, and the word "stogie" is derived from the small Pennsylvania town of Conestoga.

Farmers still do a robust business here, and last year harvested an estimated 17.6 million pounds of tobacco, up from 2007 and 2006 harvests.

Partly it's because as other states approved excise taxes on cigars, Pennsylvania became a more attractive state for big cigar distributors to do business, and politicians don't want to scare that business away.

Partly it's because of the rural culture here - Pennsylvanians consume more moist snuff than any state but Texas. Seven percent of men use snuff here; the U.S. average is 3 percent.

"From a public health perspective, it's wise to tax other tobacco products," said Jennifer Ebersole, state policy director for the American Heart Association. In Pennsylvania, "we're seeing some of our youth switching to other tobacco products because it's cheaper and easier to get" than cigarettes, she said.

The tobacco industry itself has dug in and doled out thousands in campaign contributions. Altria Group Inc., parent company to Philip Morris USA and U.S. Smokeless Tobacco Co., has contributed thousands to state House and Senate campaigns over the last two years, including Sen. Pat Browne, R-Lehigh, head of the Senate Finance Committee.

Cigar distributors and small vendors have done the same.

Cigar vendors here feel especially bombarded by the latest proposal. If the state tax goes into effect, it would come on top of the federal cigar tax increase included in the recently passed State Children's Health Insurance Program reauthorization bill. That tax is effective April 1.

Wednesday, February 18, 2009

Source: Pottstown Mercury

Debate over cigar tax smoldering in Pennsylvania