Las Vegas Sun

February 11, 2012

Currently: 58° | Complete forecast | Log in

SUN EDITORIAL:

Pipe dream posing problems

Tax avoidance scheme by small tobacco companies is legal but worrisome

Saturday, Nov. 21, 2009 | 2:07 a.m.

The federal government should have known how small, independent tobacco companies would react when it disproportionately increased the tax on their primary product.

These companies specialize in making tobacco for roll-your-own cigarettes, whose sales had been growing because they are cheaper than packaged cigarettes. But Congress and President Barack Obama this year raised taxes on all tobacco products in order to expand a program that subsidizes children’s health insurance.

Hardest hit were the companies in the roll-your-own industry. The tax on their tobacco went from $1.10 a pound to $24.78 a pound. Companies in this niche market saw their revenue nosedive.

Many responded by turning to what the Associated Press is calling a “marketing twist” — instead of paying the enormous increase, they are simply marketing their primary product as pipe tobacco, which is taxed at $2.83 a pound.

Naturally, this new pipe tobacco came on the market under the same brand names as the old roll-your-own tobacco. And of course, it was subtly advertised as suitable for both pipes and roll-your-own cigarettes. This marketing twist is legal because there are no government rules on how pipe tobacco must be formulated.

The Associated Press reported that the federal treasury could be shorted hundreds of millions of dollars a year if the labeling switcheroo stands. And there is another problem, as worrisome as the loss in taxes. Flavored cigarettes, which attract children, are banned by the Food and Drug Administration. But that ban does not extend to pipe tobacco. This opens the possibility that so-called pipe tobacco could soon be on store shelves in various flavors, an incentive for children to roll their own.

“This is a direct challenge to the federal government,” Matthew Myers, president of the Campaign for Tobacco Free Kids, told the AP.

Certainly the government should address this unforeseen strategy by the independent tobacco companies. Perhaps the tax on roll-your-own tobacco could be reduced somewhat, as it is inordinate. And without question, “pipe tobacco” needs a clear definition.

Discussion: comments so far…

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy. Additionally, we now display comments from trusted commenters by default. Those wishing to become a trusted commenter need to verify their identity or sign in with Facebook Connect to tie their Facebook account to their Las Vegas Sun account. For more on this change, read our story about how it works and why we did it.

Only trusted comments are displayed on this page. Untrusted comments have expired from this story.

No trusted comments have been posted.

Post a comment

Commenting requires registration.

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy.

If you would like to submit your comment as a letter to the editor, you may submit it here.

Most Popular

  • Viewed
  • Discussed
  • E-mailed
  • Facebook