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?

I absoluetly "Love" (Dripping with Sarcasm) How the hardest hit from this is the demographic that likely can withstand this increase the least!

People that roll your own, typically speaking, are the lower middle to lower income tax bracket folks that are least equiped financially to afford that type of tax increase.

God I hate what our Government "Of the People, for the People" is doing to the very constituents it claims to "Serve" (Dripping with Sarcasm yet again!)

Our founding fathers unquestionably are rolling over in their graves in dismay to what this land has become!

Morte a Tyrants

[Buena Fortuna]

Originally Posted by PaleRider

I absoluetly "Love" (Dripping with Sarcasm) How the hardest hit from this is the demographic that likely can withstand this increase the least!

People that roll your own, typically speaking, are the lower middle to lower income tax bracket folks that are least equiped financially to afford that type of tax increase.

God I hate what our Government "Of the People, for the People" is doing to the very constituents it claims to "Serve" (Dripping with Sarcasm yet again!)

Our founding fathers unquestionably are rolling over in their graves in dismay to what this land has become!

Morte a Tyrants

AMEN!

[Snake Hips]

Originally Posted by floydpink

How will this affect overseas purchases, if at all?

Depends on what you mean...certain overseas purchases aren't affected at all anyway, but often the tax is the replacement of your purchase with an awesome letter from the Treasury Department...

[Totemic]

Ok, how about cigars grown, produced and distributed from some other non-Cuban nation with zero presence in the US?

They shouldn't be subject to these taxes no?

[alley00p]

I talked to my B&M owner a couple days ago; he mentioned for the first time, Fuente/Newman has discontinued the practice of "requiring" B&M's order a lot of sticks that they know they won't be able to move. Now, he can pick and choose for the first time since he's been in business (no more boxes of "curly heads" as part of his order )!

The other thing is that the "bulk cigarette tobacco" tax was slated to rise from about @$1.50/lb to $24.00/lb. Even a lot of Democrats are realizing that this would bankrupt the domestic cigarette industry. The number of layoffs in that industry might drawf the crap that has happened in the auto industry! According to a friend, he interviewed an "unnamed source" who said that this is one of the things that is holding S-CHIP up right now.

Who knows what will happen?

[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.

[Snake Hips]

Originally Posted by Totemic

Ok, how about cigars grown, produced and distributed from some other non-Cuban nation with zero presence in the US?

They shouldn't be subject to these taxes no?

I wouldn't think so, but I'm finding the probability that that they would let that be exempt unlikely. Just as you're supposed to declare out-of-state purchases for your state taxes, I suppose you'll be responsible for declaring out-of-country purchases on your federal/state taxes, like the Canadians. But I was making a joke, because I wasn't familiar with any "overseas purchases" of a non-Cuban nature...

@alley00p
The "bulk cigarette tobacco" tax hike is for roll-your-own. I assume this was a "compromise" with Big Tobacco for the comparative leniency on the tax hike for manufactured cigarettes. People won't stop buying cigarettes for a dollar more per pack; I see people buying Marlboro reds for $4.60 a pack, when the place down the street has Davidoff cigarettes for $1.68 a pack. However, the roll-your-own guys will likely be jived out of their thing with that tax increase; one of the perks of RYO was its thrift...$40 for a $15 bag of tobacco, might as well just go get a carton of Pall Mall Unfiltered and be done with it...

[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.

[BarneyBandMan]

Originally Posted by alley00p

I talked to my B&M owner a couple days ago; he mentioned for the first time, Fuente/Newman has discontinued the practice of "requiring" B&M's order a lot of sticks that they know they won't be able to move. Now, he can pick and choose for the first time since he's been in business (no more boxes of "curly heads" as part of his order )!

Yeah, my B&M guy told me the same thing. He said all he had to do was pick up the phone now and order whatever boxes he needed. So I asked him to pick up the phone and order a couple boxes of 858 Sungrowns. He chuckled and picked up the phone. They chuckled and hung up.

[Totemic]

Originally Posted by Snake Hips

But I was making a joke, because I wasn't familiar with any "overseas purchases" of a non-Cuban nature...

Actually, I wasn't joking.

For example, tabacordillera.com is a cigar company that I believe is located in Costa Rica producing among other blends, Cumbres de Puriscal blend.

If I order from them, I'm curious as to how the taxes apply. Right now, if I order from them, I don't think I have to pay any federal excise tax (unless the prices include the excise tax already--which doesn't make sense for a Costa Rican outfit to be paying US federal taxes), not even the $0.05/cigar tax that's currently on the books.

Because if it is the case that non-US cigar producers/distributors aren't required to pay this stupid tax, I would imagine a sudden out sourcing of cigar distribution from the US to various parts of the world like Nicaragua, Honduras, Costa Rica, etc... Of course, it would hurt the major retailers like Famous and CI not to mention absolutely killing off what remains of the B&Ms.

[Buena Fortuna]

This is an update from my local B&M


A Cigar Tax Update
Following a long, drawn-out political fight started in 2007, President Obama signed into law the State Children's Health Insurance Program (SCHIP) renewal and expansion.
The new federal excise tax rates to take affect April 1, 2009 are as follows:
Cigarettes $1.0066/pack
Large cigars 52.75% (capped at 40.26 cents per cigar)
Snuff $1.51/lb.
Chew $.5033 cents/lb.
Pipe tobacco $2.8311/lb.
RYO $24.78/lb.
Little cigars $50.00/1,000
Note - While the new law says that the increase is capped at .4026 cents per cigar....Don't fool yourself! State OTP Taxes are added onto this increase! As an example, in Michigan the actual increase is .5314 cents per cigar. On top of the actual increase, manufacturers, wholesalers, and yes retailers will have to take an increase to maintain their gross margins. My guess is that the cigars will go up an average of .75 cents each and by $15 per box by the time it is all done!
While the tax goes into effect April 1, as I predicted the manufacturers responded by immediately raising prices on all Machine Made Cigars and many of the Premium Cigars. The increase was between 8% & 15% and was effective February 4th to the 9th. So our costs are ALREADY UP WHEN WE ORDER FROM OUR SUPPLIERS!
I fully expect an additional price increase before March 15th, of about the same amount. These increases along with the increase taken last September by the manufacturers will allow them to not increase their prices beginning April 1st or if they do, by a very small amount!
It is our intent to continue to give our customers an opportunity to purchase product before we raise our prices over the next few weeks.

ANNOUNCING....THE LAST CHANCE SALE!
On Saturday February 7th will we launch our week long PRE - SCHIP TAX promotion. In addition to continuing to sell all of our cigars at the old prices, we will be offering SPECIAL PROMOTIONS to help you afford to stock up before we raise prices beginning February 15th.
This is an unprecedented event that puts the entire burden of funding Health Care for Children on the backs of those that use Tobacco! While it provides funding for 100% of the low income Children, it is funded by less than 25% of the population that uses tobacco. THIS IS UNFAIR...BUT IT IS DONE!
I would like to thank everyone that did their part contacting elected officials over the past 3 years as we fought this battle. Today it is the smokers that are taking it on the chin....tomorrow it will be the Beer Drinkers, French Fry Eaters, Soda Drinkers and more. BE PREPARED...at some time the apathetic American People will say enough is enough!THE GREAT AMERICAN TAX REVOLT IS COMING! Our forefathers did not stand by idly while their government put unbearable taxes on them....THEY THROUGH THE TEA IN THE HARBOR!
We promise to continue to do our part in keeping Cigars as affordable as possible to our customers through The Cigar Factory Outlet! We will continue to enjoy our events and comradery at any price! Thanks for your continued business.
Dan Jenuwine
Troy, MI 48083

[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.

[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.