The actual SCHIP document on cigar & pipe tobacco

[Cigar Man Andy]

There has been a lot of questions about SCHIP and the imposed taxes.

Here is the actual SCHIP section on cigars and pipe tobacco, AS IT IS WRITTEN and a link to the entire document.

SEC. 701. INCREASE IN EXCISE TAX RATE ON TOBACCO PRODUCTS.

(a) Cigars.--Section 5701(a) of the Internal Revenue Code of
1986 <<NOTE: 26 USC 5701.>> is amended--
(1) by striking ``$1.828 cents per thousand ($1.594 cents
per thousand on cigars removed during 2000 or 2001)'' in
paragraph (1) and inserting ``$50.33 per thousand'',
(2) by striking ``20.719 percent (18.063 percent on cigars
removed during 2000 or 2001)'' in paragraph (2) and inserting
``52.75 percent'', and
(3) by striking ``$48.75 per thousand ($42.50 per thousand
on cigars removed during 2000 or 2001)'' in paragraph (2) and
inserting ``40.26 cents per cigar''.

(b) Cigarettes.--Section 5701(b) of such Code is amended--
(1) by striking ``$19.50 per thousand ($17 per thousand on
cigarettes removed during 2000 or 2001)'' in paragraph (1) and
inserting ``$50.33 per thousand'', and
(2) by striking ``$40.95 per thousand ($35.70 per thousand
on cigarettes removed during 2000 or 2001)'' in paragraph (2)
and inserting ``$105.69 per thousand''.

(c) Cigarette Papers.--Section 5701(c) of such Code is amended by
striking ``1.22 cents (1.06 cents on cigarette papers removed during
2000 or 2001)'' and inserting ``3.15 cents''.
(d) Cigarette Tubes.--Section 5701(d) of such Code is amended by
striking ``2.44 cents (2.13 cents on cigarette tubes removed during 2000
or 2001)'' and inserting ``6.30 cents''.
(e) Smokeless Tobacco.--Section 5701(e) of such Code is amended--
(1) by striking ``58.5 cents (51 cents on snuff removed
during 2000 or 2001)'' in paragraph (1) and inserting ``$1.51'',
and
(2) by striking ``19.5 cents (17 cents on chewing tobacco
removed during 2000 or 2001)'' in paragraph (2) and inserting
``50.33 cents''.

[[Page 123 STAT. 107]]

(f) Pipe Tobacco.--Section 5701(f) of such Code is amended by
striking ``$1.0969 cents (95.67 cents on pipe tobacco removed during
2000 or 2001)'' and inserting ``$2.8311 cents''.

[Jonesee]

OK, I tried to calculate it, I give up.


The calculation will vary based on the stick's price. I assume they are talking about wholesale value at the manufacturer to distributor price point. Then the flat 40.26 cents is added to that. Without knowing the w/s price of the sticks, we can't accurately calculate it.

What a pain. I assume it will be assessed on the sticks not yet in the hands of the distributors and retailers. That can be good and bad. If the distributors are honorable, they won't use this as an "opportunity" to add to the prices already in stock. If not, they are looking at window for a windfall because we, the consumers won't know which stick is which and they can raise the price of current inventory by the amount of the tax even though this isn't due.


I've obviously made some assumptions, if any of you have details and specifics throw them up here and I will crunch the numbers and post it.

[MrMusicMan1]

From my interpretation you are correct. As far as I have seen most place are going to add a $.40 tax per cigar. Size doesn't matter.

[slyder]

Originally Posted by Jonesee

If I read this correctly then:
1) They are dropping the current 4.9 cents in tax,
2) adding back ithe SCHIP tax
so:
The net effect is an additional 35.36 cents in taxation per cigar stick.


Is my interpretation correct?

So basically an extra $7 a box give or take? It sux but I guess I can deal with it. The way everybody made it sound was that boxes were gonna double in price so hurry and buy all you can afford. Glad thats not the case.

[MrMayorga]

Originally Posted by Jonesee

What a pain. I assume it will be assessed on the sticks not yet in the hands of the distributors and retailers. That can be good and bad. If the distributors are honorable, they won't use this as an "opportunity" to add to the prices already in stock. If not, they are looking at window for a windfall because we, the consumers won't know which stick is which and they can raise the price of current inventory by the amount of the tax even though this isn't due.

My guess is that they will hike the prices on current inventories knowing that their next restock will cost them more and they will need the extra cash to make their purchases.

[ghe]

In many cases, it is likely to be more like an 80-cent price hike per stick because the importer (or manufacturer in the case of the relatively few hand-made cigars made in the U.S.) pays the tax and it will get passed along. Since many retailers use keystone pricing -- basically doubling the wholesale price they pay -- you can expect the tax to get folded into the retail pricing structure before the cigars go on the shelf.

[Jonesee]

OK, I'm back. I smoked a cigar, had a glass (or 2 or 3) of wine and gave this some thought.

Let's say we have a cigar that has a price point from the manfacturer to the distributor of $5.00.

To that $5.00 we add a tax of 52.75% bring the cigar price to $7.638 (I'm not rounding yet)

They also added a tax of $50.33 per thousand sticks which equates to 5.1 cents per stick bringing the cost of the stick to $7.689

Now to the $7.689 cigar we add an additional 40.26 cents bringing the wholesale price of the cigar to $8.09...

But... while doing this they also struck down some previous taxes while simultaneously adding the SCHIP.

Net out the previous taxation that was simutaneously struck down (approx. $1.04 per stick) and the net increase in taxes on a $5.00 wholesale priced stick is $2.05. A little over 40% in taxes before state taxes.. that is healthy...

So by my best calculation (after 2 glasses of wine at least) we will see an increase of $2.05 on each $5.00 wholesale cost stick.

Additionally, any sales tax or state sin tax (yes I guess we are all sinners) is added on to the now increaased price due to SCHIP. So, we will be paying taxes on taxes. Literally...

As painful as that is to the medium and high end cigars, the bundle and lower priced cigars will disproportionately feel the tax because the base 40.26 cents per stick alone equates to almost half their cost if it a $1.00 stick.

My previous disclaimer still apllies. I am making some assumptions and if anyone has some info I am missing, give it to me and I will crunch the numbers and post it again.

[slyder]

Well thats a buzzkill!! and a kick in the

[Jack Straw]

Ouch.

[Cigar Man Andy]

So now do you see the need and reason that we are all members of Cigar Rights of America and contact our politicians. Tell them you won't vote for them if they support this bill and don;t try to get the tax removed. We can all do our part

We see $.4026 per stick, but as it was mentioned, that is to the manufacturer and that doubles at the resale level and again at the retail level. This affects us to the tune of roughly $1.60a stick. If I read it right. Read it yourself at

State Children

It is a long and boring document, but you can find SEC. 701. INCREASE IN EXCISE TAX RATE ON TOBACCO PRODUCTS.

[Jonesee]

Originally Posted by Cigar Man Andy

So now do you see the need and reason that we are all members of Cigar Rights of America and contact our politicians. Tell them you won't vote for them if they support this bill and don;t try to get the tax removed. We can all do our part

We see $.4026 per stick, but as it was mentioned, that is to the manufacturer and that doubles at the resale level and again at the retail level. This affects us to the tune of roughly $1.60a stick. If I read it right. Read it yourself at

State Children

It is a long and boring document, but you can find SEC. 701. INCREASE IN EXCISE TAX RATE ON TOBACCO PRODUCTS.

Andy, I don't see your interpretation of resale and retail taxation after reading the section below:

5741.>> is amended by inserting ``, processed tobacco,'' after
``tobacco products''.
(4) Manufacturer of processed tobacco.--Section 5702 of such
Code <<NOTE: 26 USC 5702.>> is amended by adding at the end the
following new subsection:

``(p) Manufacturer of Processed Tobacco.--
``(1) In general.--The term `manufacturer of processed
tobacco' means any person who processes any tobacco other than
tobacco products.

I read it that all the SCHIP tax will be taxed at the manufacturer's level at a price point dictated by sale to the distributors. The only taxes after that point will be various sales and sin taxes assessed by states and communities.

You appear to be familiar with the owners of the manufacturers through CRA, what are they telling you? They know better than anyone else.

[Cigar Man Andy]

Originally Posted by Jonesee

Andy, I don't see your interpretation of resale and retail taxation after reading the section below:

5741.>> is amended by inserting ``, processed tobacco,'' after
``tobacco products''.
(4) Manufacturer of processed tobacco.--Section 5702 of such
Code <<NOTE: 26 USC 5702.>> is amended by adding at the end the
following new subsection:

``(p) Manufacturer of Processed Tobacco.--
``(1) In general.--The term `manufacturer of processed
tobacco' means any person who processes any tobacco other than
tobacco products.

I read it that all the SCHIP tax will be taxed at the manufacturer's level at a price point dictated by sale to the distributors. The only taxes after that point will be various sales and sin taxes assessed by states and communities.

You appear to be familiar with the owners of the manufacturers through CRA, what are they telling you? They know better than anyone else.

I am a little confused my self but have questions out to get the correct answer. As I read it, if falls on the tobacco company first if in the US, but on the distributor if the producer is out of US. But I am not an attorney, there fore, I am asking a lot more questions.

[Jonesee]

The product (tobacco) won't be taxable until it is at point of entry to the USA. It really doesn't matter who will pay it, the distributor or the manufacturer, or importer. I'm sure it is due at whatever stage tobacco stamps are placed. My real point was it looks like it is a one time tax and not layered anywhere else in the distribution cycle except for final sale when all sales tax and sin taxes will be due.

CRA should have all this info on their site. I can't think of anything that is more important now than this.

footnote: I just checked the CRA website and it is down. The whole site is "under construction".

[slyder]

Why dont they tax things that everyone uses! Make some reall money! Lets put $1.60 tax on every can of soda thats purchased! Or maybe every bottle of water. ill type more in a few....when i get to work....ill have 8 uniterupted hours to write there!

[BlueHavanaII]

Here's what you will see on cigars:

-The manufacturers are currently taxed with a cap of 5 cents and will have to pay an increase of approx 35 cents for the new S-CHIP law.

-As a result, the wholesale price will increase. Some manufacturers will increase less than the new tax, while other will increase more. Manufacturers are also facing increased labor costs and may pass those along as well

-Most states will see the increase as cost of goods rising at the wholesale level and, as a result, will apply the OTP tax accordingly.

-Consumers can expect cigars to increase in price from 50 cents to $1.50 per stick, depending on the state and manufacturer