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Tax break for premium cigars is snuffed out

Published March 10, 2014 12:04 pm

Legislation • Sponsor said bill would stop bootlegging driven by high Utah taxes.
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Utah lawmakers on Monday snuffed out a proposed tax break for premium cigars, a proposal designed to encourage smokers to quit buying them out of state to avoid Utah's 86 percent tax.

But HB358 died on a 35-38 vote. It would have kept the 86 percent tax, but capped it at no more than 50 cents a cigar.

"We are losing a significant amount of tax revenue to neighboring states and internet sales" by smokers trying to escape the sizable tax on high-end cigars, said Rep. Brian Greene, R-Pleasant Grove.

When Wisconsin similarly capped cigars at 50 cents each, Greene said, its cigar-tax revenue more than doubled. Neighboring Michigan, which had lower taxes before, saw its sales drop by 20 million cigars the next year.

Utah could see similar results, he added.

However, fiscal analysts predicted the change could cost the state more than $3 million a year in lost revenue. Greene argued that was an error because only $1.5 million worth of premium cigars are sold annually in the state a year. In addition, the estimate did not assume any increase in local purchases of cigars.

Greene amended his bill so it would not take effect until 2016, so the projected loss would not need to be covered this year with other revenue. The extra year also will give him time to argue for a revised fiscal-note projection.

That brought objections from several lawmakers who argued that since the bill would be delayed anyway, it would be better to bring it back another year with better cost estimates.

"This is bad fiscal policy — to pass something and wait a few years" to see what the effects would be, said Rep. Paul Ray, R-Clearfield.

ldavidson@sltrib.com