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Bill That Would Have Ended Tax-Free Internet Cigar Sales Stalled

Andrew Nagy
Posted: November 7, 2013

Cigar manufacturers and online cigar retailers can rest a little easier as a bill that would have allowed states to begin collecting online sales taxes has been stalled, for now.

The bill, dubbed the Marketplace Fairness Act, easily passed a Senate vote in May and was then sent on to the House, where it died in committee earlier this week.

The measure requires all online sellers, both cigar and otherwise, with annual gross remote (i.e. Internet) sales exceeding $1 million to collect and remit sales tax. In other words, large online cigar retailers such as Pennsylvania-based Cigars International and Thompson Cigar, headquartered in Florida, would be forced to collect sales tax from out-of-state consumers who don't have to pay sales tax under current law.

Essentially, the bill attempts to resolve the complaint many brick-and-mortar stores, including tobacconists, have been making since Internet retail began: Online retailers have an unfair advantage because they don't have to charge sales tax.

The bill, though, will not be reviewed until after the election season is over, in part due to a strong lobbying effort from a group of opposing online retailers, led by Overstock.com and Ebay, of which the Cigar Association of America joined.

"We expected to lose 50 percent of our sales in premium cigars," said Craig Williamson, president of the CAA, of the bill. According to Williamson, premium cigar sales are split "about 50-50" between online cigar retailers and brick-and-mortar shops. This number, he said, comes directly from cigar manufacturers the CAA represents.

Williamson said the CAA began fighting the bill right after it was first introduced in the Senate. In addition to meeting with lawmakers on Capitol Hill, Williamson said the CAA also organized a grassroots email campaign that ended up sending nearly 46,000 notes to Congressional members asking them to oppose the legislation.

While the bill sounds like it would be beneficial to brick-and-mortar cigar shops, Williamson claims otherwise, as he believes losing a significant retail outlet like online retailers would force cigar manufacturers to cut back cigar production.

"If [cigar manufacturers] lose 50 percent of their sales, then that means they make less cigars and that means there are less cigars in the retail shops," said Williamson.

The bill is defeated, for now, but it is likely it will be reinstated in the future, perhaps as part of a larger bill.

"This bill could back anytime," said Williamson. " I still believe the Senate will try and put out a different version of the bill and send it over to the House."

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Comments   4 comment(s)

Edward Brandyberry — CORAOPOLIS, Pennsylvania, United States,  —  November 8, 2013 10:42am ET

Lobbyists, like most politicians, lie all the time about the results of taxes or no tax. I work for a brick and mortar and also have a monthly shipment from an online company in my state (PA). I pay tax online and they collect it.
The addition of this tax will only cause the big internet stores to collect and remit tax as everyone else does. It will NOT end people buying online. The attraction to online is based on two things BASE PRICE and VARIETY.
Let me discuss variety first. Our store, The Smoke Stack in Moon Twp, PA, has over 400 facings of cigars, which is not bad for a one year old lounge. But cigar.com in Bethlehem, PA has more blends than we have facings. They also sell trashy cigars to ultra premiums. Like a B&M they take their chances in inventory control. Do you really think someone will quit buying online, just because the tax is added on, like everything else we buy!
The big online cigar companies also have a pricing advantage. Because they have adopted the volume model (i.e., move as much product as fast as you can with a modest profit=more total dollars), they are sometimes less expensive on a single cigar, usually less expensive in box purchases and come up with samplers and combinations that many B&M stores will not touch.
Guess what? You cannot smoke your cigar at the online store. You often can at a B&M. We set our prices at MSRP and we give a 10% discount on boxes. But that is a business decision we made. Many B&M abide by Keystone pricing to their own hurt.


George C — Commack, NY, USA,  —  November 10, 2013 8:53am ET

The New York tax on cigars is out of control. Soon they will be taxing the taxes.


deturk8@hotmail.com November 11, 2013 2:35pm ET

In Massachusetts, you pay sales tax on the price of a Cigar(which includes the 40% cigar tax). So you are paying a tax on the tax in Mass.


Marc — Boston, MA, USA,  —  November 12, 2013 6:38pm ET

Massachusetts is one of the more onerous states in the country. If they could charge you for breathing air, they would.


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