Federal tobacco tax loophole must be closed

The different tax rate between pipe tobacco and rolling tobacco is being exploited.


Nobody likes paying taxes. Yet, they are necessary to fund government services all of us use.

So when taxes are imposed they should be reasonable and applied equally.

That's not happening with the federal tobacco tax.

The Wall Street Journal reported several U.S. tobacco retailers are selling deeply discounted roll-your-own-cigarettes made with "pipe tobacco." Federal excise tax on pipe tobacco is $2.83 a pound, compared with $24.78 a pound for rolling tobacco. The rolling tobacco tax was raised by Congress in 2009 to help finance the expansion of a children's health-insurance program.

The Journal reported that about 150 tobacco outlets are using high-speed roll-your-own machines that produce a carton of cigarettes in eight minutes. The end result is the price of a carton of cigarette is cut in half.

"These machines raise a number of questions," said David Rienzo, an assistant attorney general in New Hampshire, which has sued several roll-your-own retailers alleging they are acting as cigarette manufacturers and should therefore pay applicable fees.

The cigarette makers who follow the spirit of the law are getting cheated and so, too, are taxpayers who are paying their fair share.

"We are complying with the law, but some companies are not doing so in order to gain an unfair advantage," said Ron Bernstein, chief executive of Liggett Vector Brands Inc., a unit of Vector Group Ltd., the fifth-largest U.S. cigarette maker by sales.

Since the tax on rolling tobacco increased 14 months ago, the Journal reported, the volume of pipe tobacco sold in the U.S. has more than tripled to roughly 21 million pounds. During the same period rolling tobacco sales volume has dropped about 60 percent.

It's obvious some are taking unfair advantage. Action must be taken to close the loophole. And it needs to be done quickly.

This unfair tax situation will only grow.

Yet, the U.S. Treasury's tobacco-tax bureau says it will take months to clarify the distinction between pipe tobacco and rolling tobacco. This issue should be put on the fast track.

Ultimately this is an issue Congress must revisit, sooner rather than later.

Federal tobacco taxes must be applied equally.


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