Pipe tobacco is facing a crucial moment in the crafting of its’ definition for taxation purposes. Some think pipe tobacco could be taxed out of existence. However, right now we have the best chance to save it. The Alcohol and Tobacco Tax and Trade Bureau is soliciting comments that must be received by September 20, 2010. Currently, the only government definition for pipe tobacco and roll-your-own (RYO) tobacco is based on the labeling. So, if you label it pipe tobacco, then it is ‘pipe tobacco’ … even if roll-your-own tobacco is inside the package.

The problem with this is that last year the tax on roll-your-own tobacco had an outrageous increase of over 2000%. Then the roll-your-own producers, to escape this deadly tax, started selling their tobaccos as ‘pipe tobacco’. Once the government figured this out, two Congressmen introduced a bill to ramp up pipe tobacco taxes to be equal to RYO.

PipesMagazine.com published "Don’t Tread on Pipe Tobacco or Anything Else" in March. That article spoke out not only on the proposed tax increase of 775% on pipe tobacco, (which could still happen), but on how wrong it is to tax any lifestyle choices. The article also defended the RYO producers for exploiting the loophole in the law. We also published a petition asking for our readers to act to make sure the tobacco tax parity act was not passed.

While we still stand by our former editorial position, we are going to sing a slightly different tune now in order to preserve our beloved hobby. While these gigantic tax increases on any product are just plain wrong, we have to save pipe tobacco.

 

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Here is what is happening and what we ask our readers to do.

Recent Happenings:
1. The pipe tobacco industry is providing its’ suggestions to the TTB to get a clear differentiation between pipe tobacco and RYO.
2. The TTB is asking for public comments.
3. PipesMagazine.com has talked to several pipe tobacco manufacturers, blenders and retailers to get their input.

What Needs to Happen:
1. The industry needs to agree on the differentiating factors and speak with one voice to solve this problem.
2. The TTB cannot get overwhelmed with too many different comments, and confused, or this will fail and pipe tobacco will be taxed at the same rate as RYO.
3. We ask the public to put comments here for the industry to consider, and not on the Federal Register.

Altadis USA has submitted the most detailed comments, which are very specific in differentiating pipe tobacco from RYO. However, some of the industry has pointed out in their conversations with PipesMagazine.com that the cut requirements are too thick and the moisture content is too high to cover all legitimate pipe tobacco.

Flakes and other pressed types of tobaccos were not covered. We spoke to Paul Creasy, the General Manager of Altadis’ Richmond Virginia Pipe Tobacco division, and he told us that they are also suggesting that pre-existing pipe tobaccos be grandfathered in, which solves this problem.

He also informed us that industry representatives belonging to the Pipe Tobacco Council will convene a meeting within a few weeks (after they get through the large IPCPR industry trade show next week). At this meeting they will see what compromises can be made to address the cut and moisture measurements. The Pipe Tobacco Council is a trade group that works on legislative issues. All the members are not specified, but we do know that not every pipe tobacco producer is a member, and that there are membership dues to help pay the high attorney fees involved.

Mr. Creasy also emphasized the importance of the industry speaking with one voice or risking failure in differentiating pipe tobacco from RYO, and then suffering the consequences of a 775% tax increase.

Two well-known industry tobacco men with popular pipe tobacco brands are not in agreement with the current Altadis proposal.

Craig Tarlar from Cornel & Diehl and Gregory Pease of G.L. Pease are concerned for some of their current products, and potential new products. Before we iterate their comments, here are the pertinent details of the Altadis proposal.

A representative for Altadis USA, Inc., a manufacturer and importer of pipe tobacco, submitted the most detailed proposal regarding physical standards in comments to Notice No. 95, which were repeated in a separate letter to TTB’s Administrator. Stating that it believes the new packaging requirements outlined in Notice No. 95 are only marginally helpful in dealing with the "misclassification problem," Altadis USA, Inc. proposes that TTB establish standards of physical characteristics for pipe tobacco. It asserts that examination of physical characteristics is necessary to determine whether the product, by virtue of its "appearance" and "type," is "suitable for use" as tobacco to be smoked in a pipe, as described in the statutory definition of pipe tobacco at 26 U.S.C. 5702(n), or as tobacco for making cigarettes or cigars, as described in the statutory definition of rollyourown tobacco at 26 U.S.C. 5702(o). This commenter therefore proposes that processed tobacco in its finished form be classified as pipe tobacco only if it meets at least one of the following:

- At least 18% of its weight consists of reducing sugars;
- Moisture content exceeds 22% of its weight;
- Its cut tobacco exceeds 1/8 inch in width;
- At least 10% of its weight consists of Latakia, Perique, or Black Tobacco (USDA Type 37) or a combination thereof; or
- At least 20% of its weight consists of flavoring, casing, or other nontobacco content.

According to the commenter, any processed tobacco product that does not meet any of these criteria cannot be legitimately classified as pipe tobacco and must be classified as rollyourown tobacco.

TTB notes that this commenter also proposes that TTB take into consideration preexisting or established brands for pipe tobacco and rollyourown tobacco. The commenter states that prior to the introduction of the relevant tobacco tax legislation in Congress in January 2009, there were no "crossover brands", that is, "brands associated with both pipe tobacco and rollyourown tobacco." The commenter therefore urged TTB to deem any processed tobacco regularly sold under a preexisting brand name, trade name, or trademark predominantly associated with rollyourown tobacco, prior to January 1, 2009, as rollyourown tobacco. Similarly, any processed tobacco regularly sold under a pre-existing brand name, trade name, or trademark predominantly associated with pipe tobacco prior to January 1, 2009, should be deemed pipe tobacco.

 

Mr. Tarlar of Cornell & Diehl iterates that a 1/8 inch cut is quite thick. He said to imagine 8 slices of flake tobacco in an inch, implying they would be pretty thick slices. It is also difficult for small oriental leaves. Moisture of 22% is high in Mr. Tarlar’s view as well. He feels that 15% - 18% is more reasonable. The grandfather clause is good, but it could be a restraint of trade for someone new wanting to get into the business. It is also challenging to get a reading for moisture. You cannot insert a probe. You have to weigh a portion of tobacco, then dry it out in an oven and weight it again. Then you have to repeat the process a few times to account for fluctuations in samples.

G. L. Pease had some concerns as well. The measurements in the current suggestions by Altadis would disqualify several of his blends. While admitting that the grandfather clause would save those blends, the question is on new blends.

1) Burleys contain almost no reducing sugars, though they are generally cased, so they’d generally fly through. But, even many Virginias have sugar content lower than 18%. Orientals and Latakia are very low, so the typical Latakia blend will certainly fall below 18% reducing sugars, unless it’s cased. That leaves room for SOME of the producers, but certainly not me.

2) At 22% moisture content, tobacco is quite damp. At that level, it will clump, burn poorly, and deliver a lot of hot water vapor in the smoke-stream. At that moisture level, the likelihood of mold is increased unless steps are taken to prevent it. So, this means MORE chemicals in our tobaccos. Not my idea of good policy.

3) Cut? Most of my blends are between 1/16th and 1/10th of an inch. So, what, only broad cut tobaccos qualify as pipe tobaccos? That leaves out MOST of what’s produced for the pipe. Very few tobaccos are 8-cut or broader.

4) If a straight, uncased Virginia, at a proper 13-18% moisture content, cut 1/10th of an inch, without "black tobaccos" would not be considered a pipe tobacco, then Union Square would not be considered a pipe tobacco.

None of the above is a problem for tobaccos grandfathered in, but what it does not address is whether or not new products from existent brands would classified similarly. The language is ambiguous.

Mr. Creasy responded that this is a great opportunity for the industry to finally have a ruling differentiating pipe tobacco from RYO. In his conversations with lawmakers he never found a desire to target legitimate pipe tobacco, only what is masquerading as pipe tobacco. We have to distinguish legit pipe tobacco from illegitimate, and then we will not have to worry about the Tobacco Tax Parity Act.

Mr. Creasy admits that there are pipe tobaccos that fall outside the cut and moisture proposals Altadis has articulated. Aromatics are easy, but flakes and English styles are harder. That is why they suggested that only one characteristic need be met. When the Pipe Tobacco Council meets in a few weeks, they will address flakes and cubes.

"It is imperative to present one industry standard to the TTB that solves the problem. The industry has to speak with one voice. We have to make a clear difference between pipe tobacco and RYO. The industry needs to come together to save it. We can’t give the TTB the opportunity to say that it is impossible to determine a difference or will we lose."

"Maybe some small changes will need to be made to some blends to qualify. That would be better than failing, because then everybody would lose."

The sooner there is a definition, the less likely we will have the problem of a huge tax increase.

When asked straight out if he would consider changing the cut width and moisture levels in the proposal, Mr. Creasy said he could be persuaded to lower the moisture level, and maybe just a little bit on the cut.

"The roll-your-own guys have already figured out how to cut thicker to fake it. All I want to do is make sure there is no more fake pipe tobacco out there".

 

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