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Cigar purveyors want tax limit made permanent

They can sell for upwards of $20, they give off an odor that some people find offensive and they're bad for your health.

Not the kind of thing you want to encourage, right?

But in this year of belt tightening and budget deficits, a group of cigar shop owners is urging state lawmakers to do just that - support local sales of premium cigars and possibly forfeit tax revenue in the process.

The shop owners are calling on lawmakers to pass a bill, scheduled for a vote today in the House, that eliminates a sunset clause in a tax cap on premium cigars, making it permanent.

Adopted two years ago, the cap limits the state tax on individual cigars to 50 cents. In practice, that means cigars that wholesale for more than $1.25 are taxed 50 cents, while those costing less are taxed at a rate of 40 percent.

Shop owners pushed for the cap two years ago, after lawmakers raised the tax on cigars, pipe tobacco and chewing tobacco from 30 to 40 percent.

They say making the cap permanent is a matter of survival for about a dozen shops that specialize in premium cigars and tobacco products and compete with larger sellers on the Web.

"It's the difference between being in business and being out of business," said Paul Joyal, an owner of Mr. J's Havana Shop, located inside Joyal's Liquors, in West Warwick. "If they ever went back to that progressive 40-percent tax, you're just telling the customer, you know what, go to the Internet."

While tobacco products have fallen on disfavor in many quarters, Rep. John Patrick Shanley Jr., D-South Kingstown, the bill's lead sponsor, said premium cigars attract a different buyer than your typical cigarettes and low-cost cigars.

"It's apples and oranges," he said. "It's one a day, two a day, versus a pack a day."

Still, his bill faces opposition.

Elizabeth M. Gemski, director of government relations and advocacy for the American Cancer Society's New England Division, said extending the cap would be a mistake from a health perspective and a budget perspective, with the state trying to close a deficit of some $400 million next year.

"Raising tobacco taxes is one of the most effective measures to reduce tobacco consumption," she said. "I don't know why we would limit ourselves."

Shanley said the tax revenue from sales of cigars and other tobacco products, excluding cigarettes, has been steady since the cap's adoption in 2006. But numbers from the Division of Taxation show that revenues dropped during the cap's first year, from $2.5 million to $2.36 million. Revenue during the current fiscal year, which ends June 30, totaled $2.37 million at the end of May, though that figure is unaudited, said Paul L. Dion, chief of the division's revenue analysis office.

Either way, shop owners say the state will benefit by making the cap permanent and helping the local businesses to compete.

Freeman Healy, who oversees cigars at Healy News Store, in Wakefield, said his sales increased about a third after the cap was adopted.

"It made such a difference in the retail price," he said.

Under the old 40-percent standard, the tax on a cigar that wholesaled for $12 was $4.80. Under the 50-cent cap, the tax on that same cigar amounts to about 4.2 percent - less than the state sales tax on household items such as detergents and appliances.

Joyal said the alternative is for the state to do to premium cigars what it did to cigarettes - drive sales out of state with a heavy tax. Ten years ago, he said, he sold 1,200 cartons of cigarettes a week. Today he sells about 100.

"The customers tell you, they'll get in the car, go to New Hampshire," he said.

Shanley's bill is one of two that would help the shop owners. A matching bill has been filed by Senators Paul V. Jabour and Harold M. Metts, Democrats from Providence.

Shanley said he sponsored the cap at Healy's request, but he said he had a personal interest as well - he smokes cigars, usually a Te Amo, grown in Mexico, or a Punch, grown in Honduras.

"I'll smoke one a day, usually after I leave the State House and I'm frustrated," he said. "I find them relaxing. Sometimes I like to have one and sit there and read a book."

Tuesday, June 03, 2008

Source: Providence Journal

Cigar purveyors want tax limit made permanent