The new tax increases on tobacco products went into effect earlier this year to fund the expansion of the government's State Children's Health Insurance Program (SCHIP). The Associated Press and [image-nocss] other news sources have reported that some small producers have relabeled their RYO products as pipe tobacco to avoid having consumers pay newly increased tobacco taxes at the much higher RYO level.
Among other increases on tobacco products, the new RYO taxes jumped 2,000% per pound. RYO tobacco sales have plummeted while pipe tobacco sales are on the rise. Gary Pesh, president of the IPCPR and owner of a chain of retail tobacco stores in Virginia, said he believes it is due, in small part, to the label switch, but mostly because many consumers who roll their own cigarettes are simply using pipe tobacco, which, because of lower taxes, is less expensive than RYO tobacco.
According to the AP report, tobacco companies are exploiting a multimillion-dollar loophole. "As soon as the new law took effect, raising taxes on roll-your-own cigarettes from $1.10 to $24.78 a pound, companies adapted," said the report. "They all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It's still destined to be rolled and smoked, but it's taxed at barely a tenth the rate, $2.83 per pound."
It added, "Nearly overnight, roll-your-own brands like Criss Cross and Farmers Gold came off the shelves, replaced by pipe tobacco with the same names. The cuts may be slightly different, but they're suitable for rolling. Knowing this, retailers steer customers to the new products, sometimes with a wink and a nod, sometimes with outright advertising."
Tobacco companies say they are just trying to find a legal way to stay afloat after being saddled with an enormous tax increase. But both the Obama administration and some in Congress say they will try to come up with a distinction between the tobacco types, closing the loophole. Said the report.
"The anti-smoking forces once again are getting their underwear in a twist by reaching for straws in their attempts to besmirch our mom-and-pop members," said Pesh. "We the retailers didn't make the marketing switch."
He added, "The IPCPR is comprised of some 2,000 tobacconists, largely small, neighborhood businesses that maintain very high standards of ethics and professionalism. We didn't support these tax increases but, now that they are here, we abide by the letter of the law."
Pesh is particularly concerned with the well-funded anti-tobacco organizations claiming in the reports that his organization's membership sells any kind of tobacco products to children, including flavored pipe tobacco. "We never market to or sell any kind of tobacco products to children," he said. "Pipe tobacco is marketed strictly to adultsas are all of the tobacco products we sell. It's against the law to sell tobacco to minors. Period. As for pipe tobacco, it has been infused with a wide range of flavors to enhance and provide variety in its taste and aroma for the adult pipe smoker since the 1500s."
As for SCIP, Peash said, "These tobacco taxes are never going to be enough to pay for SCHIP. If more people smoked, they might be enough, but we all know that smoking overall is on the decline, largely due to these very same increased taxes. In a way, the government is throwing out the baby with the bath water by over taxing tobacco."
Pesh emphasized that pipe tobacco and RYO tobacco are different products for different uses; that pipe tobacco has been flavored for 500 years and has never been marketed to children; and that the IPCPR fully supports children's healthcare, but believes it should be funded by sources other than tobacco.
"Taxes aimed at modifying behavior have a way of backfiring. And the last thing we need is for government to further intrude on our businesses and personal lives," he said.
(Click here for previous CSP Daily News coverage of SCHIP, andclick here for previous coverage of the Food & Drug Administration and tobacco.)
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