Tax Hike on Cigars, Other Tobacco Products Proposed

Published October 1, 2007

Cigar makers and distributors were stunned to learn legislation to fund an expansion of the federal State Children’s Health Insurance Program (SCHIP) included a potential 20,000 percent increase in the tax on cigars.

That is not a misprint. The tax could have risen from the current 4.8 cents a cigar up to $10 a cigar.

The House and Senate versions of the legislation now under consideration have scaled back the cigar tax hike, but it remains enormous, said Michael Gold, president of Arango Cigar Company in Northbrook, Illinois, one of the nation’s leading sellers of fine cigars and other tobacco products.

“Today the tax is 20.7 percent of the manufacturers’ price, with a cap of $48.75 per thousand, or about a nickel a cigar,” Gold said. “The House increases the percentage to 44.6 percent, with a cap of $1 per cigar. The Senate version is 53.1 percent and a cap of $3 a cigar. This is on large cigars.

“On little cigars [typically sold in packs of 20], today the tax is $1.80 per thousand. The House bill goes to $42 per thousand. The Senate bill is $50 per thousand. They’re basically putting the small cigars out of business.”

Other tobacco products are also in for substantial tax hikes under the legislation. Roll-your-own tobacco currently is taxed at $1.10 a pound. The House bill would take the tax to $7.47 a pound. The Senate bill would take it to $8.90 a pound.

“This would also put roll-your-own [tobacco] out of business,” Gold said.

Steve Stanek