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California Passes 67% Cigar Tax

California FlagCalifornia Passes 67% Cigar Tax

UPDATE: June 30, 2017– The finalized excise tax rate for California is 65.08%.

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 because they are going to collect more in taxes? Actually maybe not. With more and more California customers buying out of state, and this will increase with the new 65.08% tax, California could lose even more revenue.

• 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 27.8% 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 27.3% 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 millions of 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 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.

3 Responses to “California Passes 67% Cigar Tax”

  • Avatar Bob Langmaid:

    Certainly angry over the greed here and can’t believe the voters don’t recognize the truth!! I enjoy my trips to the shop and the lounge so I’ll pay the extra $… but I may not go as often…

  • Avatar Dave Cribbin:

    Suggesting greater taxation of cigars bought online to level the playing field due to a 67% increase in state taxes makes no sense. The taxes passed in California are not designed to raise revenue, they are punitive taxes designed to put people out of business. If a $10cigar becomes a $14 cigar revenue to the B&Ms will be cut by almost a third, 3 $10 cigars or 2 $14 cigars. Focus your anger and efforts on the politicians who have managed to make tobacco evil and as such open to this type of nonsense. The cigar tax in CaLifornia will weaken the cigar retailers in that state creating a tax on internet sales will weaken online sales without producing any benefit to the local B&Ms. Raising the cost of any product will reduce demand period.

  • Rob Malgieri Rob Malgieri:

    I was in no way suggesting taxing Internet sales and I am not sure where that interpretation came from. The point was that online retailers benefit from higher state excise and sales taxes since purchasers get to avoid the taxes in their state and pay less for their cigars. I agree that the battle is within each state to not overtax products. But as things stand now, the only way a B&M can compete against the online retailers is for the state to not allow them to be shipped across state lines. That is not a tax on Internet sales, or any additional tax at all. Yes, the real battle is against the unfair taxation, but in the meantime, the Internet out-of-state retailers benefit at the expense of the B&M.

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