Lawmakers took a first step Monday toward creating a tax break for smokers who buy expensive, premium cigars — arguing it would help end bootlegging and Internet sales by smokers who try to escape Utah’s nearly highest-in-the-nation tobacco taxes.
But the American Cancer Society and the American Heart Association opposed it, arguing it could lead to more cigar smoking and also decrease tax revenue rather than help it.
The House Revenue and Taxation Committee voted 10-5 on Monday to advance HB58 and sent it to the full House.
Rep. Brian Greene, R-Pleasant Grove, said his bill would cap the state’s current 86 percent tax on the retail price of cigars to 50 cents per cigar. He said that would affect only more expensive premium cigars, not popular consumer brands.
"The vast majority of cigars, it is believed, are purchased either on the Internet or across state lines because of the onerous tax we have in this state," Greene said, noting premium cigars cost half as much in neighboring states because of the Utah tax.
He said the bill is "an effort to make this a level playing field" for Utah merchants "and capture the taxes here in the state on the purchase of cigars."
However, David Spatafore, lobbyist for the American Cancer Society, noted that the Legislature’s fiscal analysts project the bill would cost Utah $3.1 million a year. Greene said that is wrong, because the cigar industry says it now sells only $1.5 million worth of premium cigars annually in the state.
Nate Sechrest, lobbyist for the Cigar Society of America, said other states have seen bootlegging and Internet sales decrease when they enact such caps. He said Wisconsin, for instance, sold 50 million more cigars a year once it adopted a cap, while neighboring Michigan (which had lower taxes) then saw its cigar sales decrease by 20 million a year
Greene changed his bill so it would expire after five years — so lawmakers could let it disappear if anticipated revenue increases do not appear. He also delayed its effective date to July 1, 2016, to allow more study before it takes effect.
While Greene says the bill would not encourage any new smokers because it would affect only more expensive cigar brands, Spattafore said it "would only provide an economic incentive to smoke more tobacco, which is not a good health policy."
Rep. Francis Gibson, R-Mapleton, backed the bill, saying it would be unfair to impose such a high tax, and then put the money into the general fund instead of targeting to help those who pay it.
When he asked Greene why he thought the tax is so high, Greene replied, "Because it’s an easy place to slap a drastic tax on without alienating very many voters because we have, percentage-wise, a comparatively low percentage of smokers."
Sechrest said while two states — Washington and Vermont — have higher taxes on cigars as a percent of retail price, those two states also cap their amounts for more expensive cigars. So for tax on premium cigars, he said, Utah likely is the highest in the nation.
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