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Cigar Taxes Spike in Utah—Store to Close
Posted: April 12, 2010
Utah cigar smokers are facing a crippling tax on cigars that will go into effect this summer, and at least one Utah cigar shop will close its doors as a direct result of the tax.
Beginning July 1, cigars purchased in Utah will be taxed at 86 percent of the manufacturers' sale price, one of the highest such taxes in the United States. The current tax is 35 percent. The new taxes are onerous enough, but what makes this tax hike far worse for Utah retailers is the addition of a floor tax, meaning the tax they must pay on any inventory in their shops on July 1, when the law takes effect. The floor tax will require them to pay a one-time tax on the difference in tax rates, meaning a tax of 51 percent on any inventory in their shop.
"I'm going out of business because of this tax," said Gary Klc (pronounced "kelch") owner of Jeanie's Smoke Shop in Salt Lake City. "I have a huge inventory. It would actually equate to about $125,000 that I would have to come up with on my existing inventory."
The tax hike has loomed for years, and has been fought by cigar retailers in the state as well as members of various cigar organizations. Utah Gov. Gary Herbert, a politician who has said he is against new taxes, let the tax increase pass without signing it, or without vetoing the legislation.
The International Premium Cigar and Pipe Retailers Association and the Cigar Association of America lobbied unsuccessfully against the tax hike, hoping that Utah lawmakers would instead opt for a 50-cent-cap. "We were unsuccessful in convincing the legislature to include the tax cap provision in the newly approved tobacco tax increase bill," said the IPCPR's Chris McCalla.
Klc, who is 50, grew up in and around the store, which was owned by his family before he bought it in 1989. "During the hard times my mom had to come to work and bring me along with her," he said. "I was four years old at the time." He now plans to liquidate his inventory, not buy any more cigars, and said June 30 would be the last day the shop is in operation.
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