South Carolina is the latest state to introduce legislation aimed at the filtered cigar industry. Filtered cigars generally look like cigarettes, except that filtered cigars are wrapped in tobacco or paper containing tobacco. As a result, the outer wrappings of filtered cigars are brown. However, filtered cigars are often packaged like cigarettes, in packs of 20, and cartons of 10 packs. When filtered cigars weigh more than three pounds per thousand, they are generally taxed by most states as “other tobacco products,” which are generaly subject to a much lower rate than cigarettes.
As states have increased their cigarette tax rates which raise cigarette prices significantly, states are seeing increasing numbers of filtered cigars entering into the market. States are concerned both about the loss of tax revenue and the fact that the lower cost of the filtered cigars may be attracting younger smokers. For instance, in South Carolina, a pack of little cigars costs around $1, compared to $3 for the least-expensive cigarettes, $4.59 or more for premium brands.
The bill instrouced by Sen. Lourie would raise the weight requirement in South Carolina to four-and-a-half pounds or less per thousand, which would mean filtered cigars weighing less than that would be included and taxed as cigarettes. In addition, because filtered cigars are not considered cigarettes, they are not limited by the laws that prohibit flavored cigarettes. Little cigars come in many types of flavors including grape, strawberry, wild cherry and vanilla. It will likely be next year before the bill could pass and become effective within South Carolina.
Increasingly, states are imposing requirements which impact the little cigar industry and whether these products are taxed as cigarettes. Some states take a weight approach and have increased the weight limit which allow the products to continue to be taxed as “other tobacco products,” rather than cigarettes. Other states require that products that have a cellulose acetate filter are necessarily taxed as cigarettes, notwithstanding the weight of the products. Still other states have imposed a multi-factor approach, looking at product weight, packaging, marketing and the presence of a filter.
For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.