It used to be that tobacco issues were for the most part confined to state-level excise tax increases. However, taking a step back and looking at the big picture, the landscape now includes tobacco-related issues at all levels of government, including federal, state and local taxation, restrictions or regulations.
The year 2013 is no different, and includes its share of perennial tobacco-related legislative and regulatory issues along with some new proposals that seek to limit who can purchase tobacco products, as well as ban the sale of certain legal tobacco products.
On the Federal Level
This year, federal-level topics have included several FDA issues, including litigation over the cigarette graphic health warnings; a potential violation form for use by the public; a request for additional input on the use of menthol in cigarettes; and an announcement of possible new proposed regulations on cigars, pipe tobacco and/or electronic cigarettes.
In March, the FDA decided not to appeal to the U.S. Supreme Court a ruling by the Circuit Court of Appeals for the District of Columbia, which held that the FDA’s cigarette graphic warning labels violated the free-speech protections of the First Amendment to the U.S. Constitution. Rather, the FDA decided to conduct further research and develop a new set of graphic cigarette warning labels that would meet constitutional requirements for factual warning labels and also comply with free-speech protections for product advertising. This means that for the foreseeable future, the current surgeon general’s cigarette warning labels will remain in place on cigarette packages.
The FDA finalized a “Potential Tobacco Product Violation Form,” which allows a member of the public to submit to the agency via phone call, smartphone application or mailed report that a retailer may have violated one of the federal tobacco regulations. NATO has filed written comments asking the FDA to revise the form to clarify that the public can submit reports only on cigarettes, roll-your-own tobacco and smokeless tobacco products because the FDA does not yet regulate cigars, pipe tobacco or electronic cigarettes. To date, the FDA has not revised the reporting form as requested.
In July, the U.S. Food and Drug Administration issued an “Advance Notice of Proposed Rulemaking” to seek additional information and comments from the public to make informed decisions about the use of menthol in cigarettes. The FDA notice requested comments and additional evidence on the following questions:
- Should the FDA consider establishing an allowable level of menthol (e.g., maximum or minimum) in cigarettes?
- Should the FDA consider issuing regulations to address menthol in tobacco products other than cigarettes?
- If menthol were to be limited or prohibited, what length of time should manufacturers be provided to achieve compliance with the new standard?
- Should the FDA consider establishing restrictions on the sale and/or distribution of menthol cigarettes?
- Should the FDA consider establishing restrictions on the advertising and promotion of menthol cigarettes?
- Will limiting or prohibiting menthol in cigarettes result in illicit trade or a black market in menthol cigarettes?
Besides the notice on menthol in cigarettes, a final regulatory notice issued by the FDA stated that the agency plans to issue proposed regulations on products that meet the definition of a “tobacco product” under the terms of the Family Smoking Prevention and Tobacco Control Act, the law that authorized the agency to regulate tobacco products. This means that the FDA may issue proposed tobacco regulations on cigars, pipe tobacco and/or electronic cigarettes. Any such proposed regulations would be open for public comment prior to being finalized by the FDA.
Regarding federal tobacco taxation, President Obama is proposing to expand preschool education to all low-income 4-year-olds across the country at a cost of $75 billion over the next 10 years and to pay for the expansion by raising the federal cigarette tax from $1.01 per pack to $1.95 per pack and also increasing the federal tobacco tax rate on all other tobacco products by 93%.
At the State Level
Although 36 state legislatures considered legislation this year to increase or decrease cigarette and tobacco product tax rates, eight states have actually enacted an increase or decrease in cigarette and/or tobacco product tax rates.
Arkansas enacted a cap on premium cigars of 50 per cigar that takes effect Oct. 1, 2013.
Colorado made permanent the state sales tax of 2.9% on the sale of cigarettes. Effective Aug. 1, Kentucky reduced the chewing-tobacco tax rate to 19 cents per each 1.5-ounce single unit.
In Massachusetts, the cigarette tax rate was increased by $1 per pack to a new rate of $3.51, cigars and RYO tax rates were raised to 40%, and the tax on moist snuff and chewing tobacco rose to 210%.
As of July 1, the Minnesota state cigarette tax was increased by $1.60 per pack, the OTP tax was also increased to 95%, and the tax on non-settlement cigarettes was raised to 50 cents per pack. In addition, a minimum tax on moist snuff of $2.83 per container or 95%, whichever is greater, will go into effect Jan. 1, 2014.
In New Hampshire, the state cigarette tax rate automatically increased by 10 cents per pack to $1.78 on Aug. 1, 2013, and the OTP tax increased to 65.03% due to lower cigarette and tobacco tax revenue for the two-year period from July 1, 2011, through June 30, 2013, than the two-year period from July 1, 2009, through June 30, 2011.
The tax on little cigars in Ohio will increase from 17% to 37% of the wholesale price effective Oct. 1, 2013. In Texas, a new law imposes a tax of 2.75 cents per cigarette on both non-settling manufacturer cigarette brands and non-settling manufacturer cigarette tobacco, effective Sept. 1, 2013.
The states in which proposed increases or decreases in cigarette and/or tobacco tax rates were not enacted this year include Alabama, California, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maine, Maryland, Mississippi, Missouri, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, West Virginia and Wyoming. Three states with year-round legislatures that have pending tax bills include Michigan, New Jersey and New York.
States also considered assessing taxes on electronic cigarettes. Minnesota is the only state that taxes e-cigarettes. The Minnesota tax rate on e-cigarettes is 95% of the wholesale cost. A bill in Hawaii that would have applied the state’s cigarette tax rate to e-cigarettes did not pass this year. Also in Massachusetts, a bill is still pending that would tax e-cigarettes at a rate of 90% of the wholesale cost. Utah was another state that had a similar bill to tax e-cigarettes at 86% of the wholesale cost.
Bills were also introduced in Oklahoma and South Carolina that would establish a different method of taxation for e-cigarettes. Rather than classifying e-cigarettes as a tobacco product, these two bills define e-cigarettes as a vapor product and apply a tax of 5 cents per nicotine cartridge, with a limit on the tax per cartridge being no greater than one-tenth of the tax on traditional cigarettes.
Also on the state level, five states considered but did not enact bills that would have raised the legal age to purchase tobacco products. The states with bills included New Jersey (age 21), New York (bills for ages 19 and 21), Oklahoma (age 19), Oregon (age 21) and Texas (age 21). Alabama, Alaska, New Jersey and Utah have a minimum purchase age of 19.
At the Local Level
Turning to the local legislative front, 70 cities and counties in 16 states have considered or are proposing local restrictions or bans on tobacco products. These bans include prohibiting tobacco product coupon redemption and outlawing promotionally priced tobacco products such as a buy-one-get-one free package. Also, some towns have considered ordinances to either limit or even reduce the number of retailers allowed to obtain licenses to sell tobacco products. And an increasing number of localities are proposing to raise the minimum age to purchase tobacco to either 19 or 21 years old.
Most recently, there have been proposals to require that all retailers remove tobacco products from the public view and ban the sale of electronic cigarettes and other smokeless tobacco products such as snus and nicotine tablets or lozenges. Finally, numerous towns, especially in Massachusetts, have required that cigars be sold in packages containing at least four cigars, and allow single cigars to be sold only if the retail price is at or above $2.50 per cigar.
Two local ordinances of particular interest are the New York City proposed tobacco regulations and the Canton, Mass., restrictions that were adopted in August of this year. The New York City council has been considering two ordinances that would prohibit retailers from displaying any tobacco products in the public view, ban tobacco product coupon redemption, eliminate promotionally priced tobacco products, and raise the legal age to purchase tobacco products to 21. An additional proposal has also surfaced that would apply these same restrictions to include electronic cigarettes, plus ban the sale of any flavored e-cigarettes. The New York City Save Our Stores retail coalition was formed earlier this year to organize retailers to oppose these restrictive tobacco regulations.
In August, the Canton, Mass., board of health adopted a local tobacco ordinance that bans the sale of snus and other non-combustible nicotine products such as dissolvable tablets, while also raising the legal age to purchase tobacco products from 18 to 21. However, the board of health removed from the proposed ordinance a ban on the sale of electronic cigarettes. The ban on the sale of snus and other nicotine products is a first of its kind in the country and is scheduled to go into effect Jan. 1, 2014.
In conclusion, when looking at the big picture, the legislative and regulatory landscape for tobacco products now covers all levels of government as shown by the legislative activity and FDA regulations this year. Tracking and responding to all of these legislative proposals can prove daunting at times, but the job is an essential one because tobacco products are a significant product category for retailers.
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