The state switches to a punitive weight-based tax on many tobacco products, which benefits Philip Morris and penalizes the smaller producers.

AUSTIN, Texas, May 27 /PRNewswire/ — The Texas Senate voted 29-2 to pass a $100 million tax increase on smokeless tobacco and other tobacco products. HB 2154, while being a laudable program to fund rural doctor programs and changes in the business franchise tax, relies on an enormous tax on smokeless and other tobacco products, such as pipe tobacco and roll-your-own tobacco to help fund the legislation. The Texas House voted on a similar measure by a vote of 79-61 after much contentious debate. This issue has been debated over the past three legislative sessions and is largely viewed as an internal tobacco industry fight between industry giant, Philip Morris (now Altria), and the smallest companies says National Tobacco, headquartered in Louisville, KY.

"It is unfortunate that the Texas Senate, with little debate and what appears to be little understanding of the real market, passed a large tax increase on the small companies that compete with the ‘Marlboro(R) Man’ and ‘Copenhagen(R) Man,’ not realizing such a tax hike will do little to sustain these programs going forward," says Ron Tully, Vice President of National Tobacco. "This new tax is a huge gift to the same tobacco company that was sued in the late 1990’s by the State of Texas, and the same company that recently lost an Appeal in the US Department of Justice case, for deceptive trade practices."

This bill changes the methodology of how smokeless tobacco is taxed, from being a tax on the manufacturer’s list price to being a tax based on the weight of tobacco in the final retail package. "Texas has been enjoying a rise in tax revenues from the current smokeless and other tobacco products tax, because the free market allowed companies to compete aggressively for adult customers. Texas has consistently brought in more tax revenue each year on these products, as almost all manufacturers, including Philip Morris, annually increase their prices on brands such as Copenhagen(R) and Skoal(R) to offset rising costs. As a result of these annual increases, the state gets an automatic revenue bump from the current list price tax. Even the Texas Comptroller of Public Accounts acknowledges that the revenue from smokeless tobacco based on the current list price method, would increase from $75,918,000 to $86,877,000 for the biennium 2010-2011. With the proposed weight-based tax method, Texas will experience less revenue in the future as tobacco sales decline," says Tully.

Tully added, "Philip Morris, which now has over a 50% share of the cigarette market and over a 50% share of the smokeless tobacco market, is pushing for this weight-based tax on almost all tobacco products, simply to take out the small competitors in the market and make its smokeless and smoking brands the dominant market players. Interestingly Philip Morris has managed to maintain an exemption from this new weight-based tax for its popular Black and Mild(R) cigar products. Texas will now have the unpopular distinction of being among only a few of the 50 states that have elected to switch to a punitive weight-based tax on many tobacco products."

"When doctors who have historically opposed smoking, stand with Philip Morris, you know it has got to be a bad deal for someone. If Philip Morris is supporting a tax on the tobacco industry, you also know it must be a good deal for them and the brands they sell. And it is," Tully says.

 

SOURCE National Tobacco Co.