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21-Jul-2007
Smoke clears on Pa. budget with no new tobacco taxesSmoke clears on budget with no new tobacco tax

This was to be the year that Pennsylvania would join the rest of the country in levying an excise tax on smokeless tobacco, snuff and cigars. The Democratic governor wanted more money for his sweeping health-care plan, while some of the major defenders of the cigar industry had left the Capitol.

And yet, when the smoke cleared and the budget was signed this week, 16 days late, there were no tobacco excise taxes included in the deal.

When Big Tobacco states such as North Carolina, Kentucky and West Virginia have levied excise taxes on non-cigarette tobacco, how is it that Pennsylvania still remains without one? Lobbyists and lawmakers alike credit a confluence of factors -- a budget surplus of $650 million, thanks to healthy tax collections, and a raft of new legislators who were elected on a platform of no tax increases.

"I firmly believe that this tax is inevitable," said Rep. Dan Frankel, D-Squirrel Hill. But "there was overwhelming sentiment on both sides of the aisle that we shouldn't be raising any taxes this time." Mr. Frankel, for the record, disagrees with that sentiment, saying the money collected from taxing cigars and smokeless -- perhaps $30 million to $40 million -- could have been funneled to biomedical research or the Department of Welfare.

But those discussions never went anywhere.

"Big Tobacco has a great deal of sway in the Pennsylvania" he said, "particularly in the state Senate." As evidence, he pointed to the back-and-forth discussion over the state smoking ban -- the House would approve a strong ban, then the Senate would insert loopholes, Mr. Frankel said.

"The small minority really commands the political stage" on the tobacco issue, he said. Most polls, he added, show majority support of a smoking ban and expanded tobacco excise tax.

Despite the "overwhelming sentiment" against new taxes, the ever-shifting nature of a budget negotiation has taught lobbyist Dick Gmerek that a deal isn't done until the ink has dried on the governor's signature. Even in the last week of negotiations, Mr. Gmerek, who represents U.S. Smokeless Tobacco Co., worried that the Legislature would return to tobacco taxes in order to fund a film industry tax credit designed to lure Hollywood to the state and valued at up to $80 million.

"If they ended up needing money, one place they might look" is tobacco, Mr. Gmerek said. As recently as last week, he told his client, which makes Skoal, Copenhagen and cheaper brands, that the state "may throw us on the table one more time."

Though he hoped the industry had avoided an excise tax, Mr. Gmerek says he wasn't certain of the outcome until at least an hour after the governor and Legislature agreed on the budget.

Smokeless tobacco has one clientele set. Cigars have another, and thus another group of lobbyists and constituents were fighting against the cigar excise tax.

Smokers, collectors, cigar shops, distributors and tobacco farmers in Lancaster and other central and eastern counties all teamed to oppose the tax, said Keith Meir, CEO of Cigars International, one of the largest cigar distributors in the United States.

"We tried to help mobilize some of the Pennsylvania cigar enthusiast as to what's going on," he said. He also dispatched his lobbyist to meet with House Majority Leader Bill DeWeese, Senate Majority Leader Dominic Pileggi and others.

"Three of the five biggest U.S. cigar companies are in Pennsylvania, and moved here because of the environment," meaning the absence of excise taxes. "That's why we came here. There's no [geographic] reason to be here." Florida would make more sense, as Mr. Meir makes frequent buying trips to the Dominican Republic and elsewhere.

Not so subtly, Mr. Meir told lawmakers that any significant excise tax on cigars could lead to the loss of $20 million worth of Pennsylvania jobs related to the cigar industry -- along with Cigars International, Holt's Cigar Co. and the Tinder Box, all headquartered here. Tinder Box moved here from California, because of the tax-free sales.

But the victory for cigars and smokeless tobacco might be short-lived. Mr. Gmerek expects the governor to revisit the tax issue this fall, when he intends to search for funds to cover his "Prescription for Pennsylvania," a plan to expand access to health care.

Though they don't see eye to eye on the issue, on this much, Mr. Frankel and Mr. Gmerek agree: The tobacco excise tax will be a part of future budget discussions. "It's just going to happen," Mr. Frankel said.


Source: Pittsburgh Post Gazette