S-CHIP Required Reading

[Buena Fortuna]

I found this blog by a trusted and knowledgeable B&M updating the S-CHIP legislation.

http://cigarfox.blogspot.com/2009/01...g-for-all.html

[Tio Gato]

I'm going to show this to my wife as proof that I better buy several hundred cigars in the next couple of months.

[BarneyBandMan]

In talking with my local B&M owner yesterday, he said the cigar manufacturers are looking at all kinds of ways to keep this tax effect to a minimum. For example, he said he's talked to some reps who were indicating that some manufacturers were looking at breaking down the actual cost of a box of cigars in order to reduce the effective actual cost of the tobacco in the box alone and thus reducing the effect of the pass-along tax.

For example, a box of premiums tubos consists of a few dollars worth of wood for the box, the glass for the tubes, etc.--trying to do what ever they could to identify the exact price/value of the tobacco in the box alone and then pay the tax based on that, not the entire package.

He seemed to think it was a possibility to do that. I don't know, but thought I'd pass it along for

[macpappy]

I don't understand his logic in the 70% increase he is predicting.

I don't think/believe the government is going to place a tax increase on most manufacturers since they are not U.S. companies so their cost of business shouldn't go up. The same should be true on US companies, I haven't seen anything to suggest that their cost of business will go up because of SCHIP. The local B&M are going to be the ones hit first because they will have to pay the increase on everything they order. So, if you take a box of 20 cigars that normally has a wholesale price of say $80. Add to that the 40 cents per stick SCHIP tax increase ($8.00) and the wholesale cost goes up from $80 to $88 per box. I would hope that the B&M would do the right thing and only increase the retail price by the amount of the tax increase also. This would take a $5.00 cigar and raise the price to $5.40 per stick.

Now I am not sure how the wholesaler is affective by the tax increase since he is buy directly from the manufacturer. Will the wholesale be required to pay a tax on the price of the cigars from the manufacturer? My foggy understanding was that the tax would be based on what the wholesaler sold the cigars to the retailer for.

I've talked to my local B&M owner and he said that is what he plans to do when forced to. He figures if he increases the price more than he absolutely has to that he will lose business.

[Snake Hips]

Looks like if you roll your own, you may now also have to grow your own...

[hotreds]

Sobering.....

[floydpink]

How will this affect overseas purchases, if at all?

[jitzy]

Originally Posted by macpappy

I don't understand his logic in the 70% increase he is predicting.

I don't think/believe the government is going to place a tax increase on most manufacturers since they are not U.S. companies so their cost of business shouldn't go up. The same should be true on US companies, I haven't seen anything to suggest that their cost of business will go up because of SCHIP. The local B&M are going to be the ones hit first because they will have to pay the increase on everything they order. So, if you take a box of 20 cigars that normally has a wholesale price of say $80. Add to that the 40 cents per stick SCHIP tax increase ($8.00) and the wholesale cost goes up from $80 to $88 per box. I would hope that the B&M would do the right thing and only increase the retail price by the amount of the tax increase also. This would take a $5.00 cigar and raise the price to $5.40 per stick.

Now I am not sure how the wholesaler is affective by the tax increase since he is buy directly from the manufacturer. Will the wholesale be required to pay a tax on the price of the cigars from the manufacturer? My foggy understanding was that the tax would be based on what the wholesaler sold the cigars to the retailer for.

I've talked to my local B&M owner and he said that is what he plans to do when forced to. He figures if he increases the price more than he absolutely has to that he will lose business.

I believe the way it works and I could be wrong is this, if a B&M buys a box from the manufacturer for $100 he sells it for double $200. So if the increase hits the cigars before it gets to the B&M and that box now costs him $108 he's gonna sell that for double $216. So sadly one of the only ways to soften the blow on the public is for the B&M to absorb some of the increase and thats really not fair to them. The way I see it B&M's in states like mine (NY) are in a lot of trouble since we already pay 37% tobacco tax here this will kill a lot of these small businesses.

[Kreth]

Originally Posted by jitzy

The way I see it B&M's in states like mine (NY) are in a lot of trouble since we already pay 37% tobacco tax here this will kill a lot of these small businesses.

Especially with our illustrious governor now making noise about raising the state tobacco tax, AGAIN.

[Pat1075]

It'll be the floor tax that'll put the hurt on a lot of businesses. I.E. since the tax was only X when they bought the product they have to pay Y because that tax didn't exist yet on everything they already own. (seems extortionist to me but what do I know)

[mithrilG60]

Originally Posted by macpappy

I don't think/believe the government is going to place a tax increase on most manufacturers since they are not U.S. companies so their cost of business shouldn't go up. The same should be true on US companies, I haven't seen anything to suggest that their cost of business will go up because of SCHIP. The local B&M are going to be the ones hit first because they will have to pay the increase on everything they order. So, if you take a box of 20 cigars that normally has a wholesale price of say $80. Add to that the 40 cents per stick SCHIP tax increase ($8.00) and the wholesale cost goes up from $80 to $88 per box. I would hope that the B&M would do the right thing and only increase the retail price by the amount of the tax increase also. This would take a $5.00 cigar and raise the price to $5.40 per stick.

Now I am not sure how the wholesaler is affective by the tax increase since he is buy directly from the manufacturer. Will the wholesale be required to pay a tax on the price of the cigars from the manufacturer? My foggy understanding was that the tax would be based on what the wholesaler sold the cigars to the retailer for.

My understanding that the tax is applied each time tobacco changes hands. With cigars that will be at least 4 times (as product arrives in the US, as the importer sells to the wholesaler, as the wholesaler sells to the retailer as the retailer sells to the consumer) so the actual tax will be $1.60 per stick and not $0.40. I could be wrong though as, being Canadian, SCHIP makes 0 difference to me one way or the other. Besides SCHIP is still a joke of a tax compared to what we're hit with up here so I'd still count yourselves lucky.

[macpappy]

Originally Posted by mithrilG60

My understanding that the tax is applied each time tobacco changes hands. With cigars that will be at least 4 times (as product arrives in the US, as the importer sells to the wholesaler, as the wholesaler sells to the retailer as the retailer sells to the consumer) so the actual tax will be $1.60 per stick and not $0.40. I could be wrong though as, being Canadian, SCHIP makes 0 difference to me one way or the other. Besides SCHIP is still a joke of a tax compared to what we're hit with up here so I'd still count yourselves lucky.

The explanation given to my local B&M owner is that it is only going to be applied to the wholesale price paid by the retailer.

You may have higher taxes but don't you have that wonderful socialized health care for everyone?(note the sarcasm, please)

[stitch]

I'm an RYO guy, Been rolling my own for 35 years,
This $24. tax is the most insane thing I've seen from our wonderful protectors in DC in some time .... I just bought 20 pounds of my favorite rolling tabac.
God only knows what they have in store for us next.

[BengalMan]

Originally Posted by stitch

I'm an RYO guy, Been rolling my own for 35 years,
This $24. tax is the most insane thing I've seen from our wonderful protectors in DC in some time .... I just bought 20 pounds of my favorite rolling tabac.
God only knows what they have in store for us next.

If you notice, the CigarFox article was from 17 days ago. From what I've heard, a revised version of the bill was put together on Tuesday that lowers the $24 tax on RYO substantially. I could be wrong, but it's just what I overheard today.

As far as the tax on cigars goes, let me break it down in the sake of whole numbers.

-You have a box (let's call it Box A) of 25 cigars that has a wholesale cost of $100.
-Manufacturer X now has to pay an additional 35 cents per cigar (right now, they pay 5 cents per cigar).
-Box A, used to cost $100 on the wholesale level. With the new tax Box A now costs $108.75 on the wholesale level.
-Shop B buys Box A for $108.75. Shop B's state (let's say it's Michigan for example) has to pay the state of Michigan 32% of the wholesale cost. Shop B, before the tax was paying the state $32. Now Shop B is paying Michigan $34.80 per box.
-Now is where things get tricky and it comes down to Shop B's personal business practices and this is what will make the biggest difference. The below are just two basic keystone structures.
- First, let me give you an example of a basic keystone formula that is commonly used by many manufacturers to get MSRP. The wholesale cost of the Box A is now $108.75 with SCHIP. On a full keystone cigar, that would mean MSRP of that stick would be $8.70 ($108.75 * 2 / 25). Now, obviously, MSRP is before state taxes.
-Method 1 - Box A is $108.75. Keystone of that cigar is $8.70. HOWEVER, Shop B must pay $34.80 to the state of Michigan. Method 1 is a shop takes $34.80 / 25 and gets $1.40 per stick added to the $8.70 stick, making the final price, before sales tax (if there is any) $10.10
-Method 2 - Box A is $108.75. Tax is $34.80. Shop B adds the two together getting a total of $143.55, THEN keystone's the cigar, now making the final price, before sales tax (if there is any) $11.48

These are just two basic examples of the end result of SCHIP. Now lets compare Method 1 and Method 2 pre SCHIP.

Pre SCHIP
Method 1 - Box A is $100 wholesale. Keystone is $8 per stick at the consumer level. After state tax is paid, cigar ends up being $9.28 before sales tax.
Method 2 - Box A is $100 wholesale. Keystone is $8 per stick at the consumer level. Adding tax, then doing keystone on said cigar would make it $10.56.

So, in the end, using methods 1 and 2 your difference per stick post SCHIP would be:
Method 1 would give you an 82 cent increase per stick, or $20.50 per box.
Method 2 would give you a 92 cent increase per stick, or $23 per box.

Please keep in mind, these are just examples and like I said, every shop prices their cigars differently, this was just laid out to give everyone an idea of what were looking at. To be honest, under a buck a stick increase on the HIGH end isn't going to really change my buying habits much. I've spoken with many many cigar smokers and like you and I they're not happy about it, nor should they be. However, almost all of them said the same thing, their going to continue smoking what they like. Weather your $30 cigar now costs you $30.82 or your $5 cigar now costs you $5.82, smoke what you like when you like.

With that being said, I'm going to bed. I haven't done that much math since college and my brain is tired. If my math is wrong I apologize, I tried my best, lol.

[BengalMan]

Jitzy,

See my breakdown a few posts above. The option that the B&M's have is to not keystone the tax, which some already do. Some B&M's add the state tax to the wholesale cost, and keystone the whole thing, others keystone the wholesale price, then just add the per stick tax onto the msrp.

[Sailchaser]

Some good info from everyone here ,bottom line is they are going to increase the price of sticks no matter what, The sad part is that we will contiune to buy and they (goverment) will see that we do and add another tax on in 6 months to pay for some other program they come up with, It sucks but the USA is still one of the best places on earth to live ,
Happy Smoking

[Buena Fortuna]

Originally Posted by Sailchaser

Some good info from everyone here ,bottom line is they are going to increase the price of sticks no matter what, The sad part is that we will contiune to buy and they (goverment) will see that we do and add another tax on in 6 months to pay for some other program they come up with, It sucks but the USA is still one of the best places on earth to live ,
Happy Smoking

Who's going to use their stimulus funds to off set the S-CHIP increase??? Sounds like a plan to me

[TheRiddick]

Originally Posted by Buena Fortuna

Who's going to use their stimulus funds to off set the S-CHIP increase??? Sounds like a plan to me

I am sure we'll see a run on cigars and RYO in the next month or so, right up to the March 30th cutoff. The only problem I see is that we'll end up with flat sales for the products after that point, for months to come, and that will lead to either some jobs lost (best case scenario) or closures of some places altogether and many more jobs lost.

I am watching CA budget impasse right now, the latest is that they will create a new tax on ALL alcoholic beverages, at $0.05 per drink. Not much, it seems, but I am not sure yet where that will start, if it starts at the production end, then it will escalate upwards eventually and that nickel becomes much more by the time you down that drink.

And as is, CA passed this "SCHIP like" tax on tobacco about 10 years ago, we will now pay on top of that. I would love to know where the money has gone for the past 10 years, if it hasn't worked in CA as intended, then why does Hussein's team believe it will work for the entire country? Anyone hear from Rob Reiner since he was able to enact this stupidity in CA and can he provide real time numbers for anyone to look at and see if the program actually works?

I'll fire off a few emails to Rush and O'Reilly and see if they want to pick this up.

[macpappy]

I just visited my local B&M and had a chat with one of the owners. She pulled out a letter she received providing information about the tax. Basically the retailer will pay the tax when they buy cigars starting on April 1. She buys directly from the manufacturer and not through a wholesaler. According the the U.S. manufacturers she has talked to, they will pay the SCHIP and add the 40¢ per cigar to the box price. On a box of 20, that comes to $8.00. That is the only time the tax will be added to the wholesale cost of the cigars. The B&M will then raise its prices to compensate for the $8.00. According to the owner, they are only going to raise their prices by the 40¢ per cigar.

They haven't figured out how this will work with foreign manufacturers. Some seem to think that the B&M will buy from these manufacturers and then have to report the purchase to the government and pay the tax.

At this time, her and her husband plan to buy as much stock as they can afford prior to April 1 and delay any price increases to the customer as long as possible.

On another note, she said that at least one manufacturer is considering reducing the price of the cigars themselves and increasing the same amount for packaging. Her example was that the manufacturer currently sales a box of cigars for $100. To help offset the cost of the tax, the manufacturer will sell the 20 cigars for $80 and charge $20 for packaging. Since the tax only applies to tobacco, this will reduce the amount of money collected on some cigars.

Originally Posted by Buena Fortuna

Who's going to use their stimulus funds to off set the S-CHIP increase??? Sounds like a plan to me

Unless I missed it there are no plans for a stimulus check like last time and I have seen nothing in the news that leads me to believe anything they have been discussing will put cash in my hands anytime soon.

Chas