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Cigar-store owners worry new taxes will sink shops

Valley 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.

In the Valley, cigar stores spread when the economy was red hot in the mid-2000s.

Joel Schwartz, owner of Ford and Haig Tobacconist in Scottsdale, said the Valley went from about 15 cigar stores in the past decade to almost 70 in recent years.

Now, the abundance of stores has fragmented the customer base, leading some stores to close and others in the market to fear more contraction as the economy continues to falter.

"I think we have more stores per capita than anywhere in the country," said Schwartz, whose store has been open since 1958. "The pie is only so big."

A number of shops have already closed, including Lonsdales in Scottsdale and Matchstix in Chandler, Schwartz said.

"All of us are fighting for crumbs," said Jaye, of Oggie's.

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

Fawmakers 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, including 45 in Arizona.

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."

Valley store owners do not expect a huge surge of sales this month to avoid the new tax because most cigar smokers buy in small quantities.

Friday, March 06, 2009

Source: Arizona Republic

Cigar-store owners worry new taxes will sink shops