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Tobacco, cigar retailers bemoan proposed tax hike

PETOSKEY — A proposed tax hike on cigars and pipe tobacco has smoke shop owners at odds with Lansing.

Staring at an estimated $700 million deficit in this year's budget, Gov. Jennifer Granholm is proposing a series of tax increases, including doubling the tax on so-called Other Tobacco Products, from 32 percent to 64 percent. That would include cigars and pipe tobacco, as well as rolling and chewing tobacoo.

Mike Nolan, whose Traverse City cigar shop bears his name, called the proposed increase "off the charts." He's started a letter-writing campaign among his customers to oppose it.

"That's way too extreme. If the state's goal is to put us out business, it might be a very effective tax," Nolan said.

The existing 32 percent tax on non-cigarette tobacco is and would remain a percentage of the wholesale price. The tax structure for cigarettes is entirely different, though taxes generally account for between 80 percent and 150 percent of the wholesale price per pack, depending on the brand, according to state officials.

The proposal would make a more level playing field, said Lisa Danto, a member of the Traverse Bay Area Tobacco Coalition.

"It really doesn't make sense to provide one tax for cigarettes, but set aside another tax for other tobacco products," she said. "They're all tobacco products."

Nolan called it a "sound-bite argument."

"We can't sell our product at 64 percent," he said. "With cigarettes, it's illegal to purchase them across state lines. But cigars do not have that exemption. They can and do flow across state lines easily. To put us in the same category is unfair."

Peter Lambeth, owner of Pete's Pipe and Tobacco in Petoskey, said when the state boosted the Other Tobacco Products tax from 20 percent to 32 percent in 2002 he saw a "significant dip" in sales.

"My customers are intelligent. Calling up and buying a box of cigars from a catalog with a credit card is no big deal," Lambeth said.

"There's a point that it becomes an attractive option."

The state predicts a $36.6 million annual windfall from the proposed tax increase, which has been introduced in the both the state House and Senate.

"It's certainly not our intention to drive businesses away. Our intent is fairness in our tax system. We believe this is fair," said Greg Bird, chief spokesman of the Michigan Budget office.

The pending bills also include a measure to impose the tax increase not only on future purchases, but on everything already on store shelves at the time of approval.

Lambeth predicted that could amount to an extra $20,000 one-time tax bill on his store this summer.

"I can try to reduce my inventory between now and then, but coming off a slow winter season, that is not an easy thing," he said. "I'm turning into as much of a tax collector as I am a businessman. There aren't many businesses or industries that are like that."

Source: Traverse City Record Eagle