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California Passes 67% Cigar Tax
California excise tax on cigars has hovered around 30% for a few years. Several previous initiatives have failed, but not this time. Once again, cigars have been lumped in with cigarettes.
What this Means for the Cigar Smoker in California
Depending on your local cigar shop’s margin structure, a $10 cigar is going to go up to around $14.
Who is Going to Win?
• The state of California, of course, because they are going to reap another estimated $700 million in taxes, at least.
• The online retailers outside of California.
Because they are shipping to another state, the online retailers are not required to collect other state’s sales tax. They are also not responsible for collecting the current almost 30% excise tax on behalf of the state of California, or any other state. The California resident that purchases their cigars is responsible for the sales tax and the excise tax, but who is volunteering to pay that?
Who is Going to Lose?
The biggest loser in this mess is the brick and mortar shops in California. From the hundreds of cigar smokers that I have spoken to over the past few years, well over 90% purchase the bulk of their cigars online. Why? Because they don’t want to pay the higher prices that includes sales tax and excise tax at their local B&M. And that was with “just” a 30% excise tax and anywhere from 7.5% to 10% sales tax savings.
When cigar smokers want to relax with friends and smoke a cigar, most are fine paying more at the local B&M because they see the service provided by the tobacconist. But, most cigar smokers find a cigar they like, and then order it online, especially if they are buying larger quantities.
What’s the Solution?
You are not going to like this one, but in order for B&M’s to survive, the state needs to outlaw interstate shipments of cigars. Cigarettes cannot be shipped across state lines without proper distribution and taxes, and that is a federal law. Ideally, there should be a federal law to disallow the interstate shipments.
If the feds won’t enact a law, the state of California, or any state, could and should make their own law to not let cigars go outside of the distribution channel. What this would mean for California is over a billion dollars in excise tax and sales tax that is currently slipping through their greedy fingers.
I seriously question what our California Assembly is doing when they have an opportunity to not only collect more revenue, but to protect small businesses. Someone is paying off somebody to stop this from happening.
You Have to Decide if your B&M is Worth Having Around
Everyone likes to see the cigar, the lighter, the humidor, the cutter, or other accessory before they buy it. Who wants to pay for a box of cigars online without having ever tried it? The next step is to decide what you want to buy, and then bypass the retailer to get a better price online. What did the B&M get out of this deal?
Do you enjoy going to your local shop and smoking a cigar and maybe having a drink with friends? Maybe even smoking a cigar in a comfortable chair while watching a game or using the free Internet to get some work done?
Is there not a value in all of this that justifies supporting your local shop?
Conclusion: Back to the Tax Increase
As of April, 2017 or July, 2017 (vague depending on which article read as to when the increase will go into effect) you will have an even bigger excuse to buy your cigars and accessories online. Just understand that many of the B&M’s are going to go out of business. They do have to make a profit, and this tax increase is going to put their prices way out of line making it outright impossible to compete.
Only you can decide where this will go.