Senators Push Measure to Close Loose Tobacco Tax Loophole

WASHINGTON, D.C. -- Senators are pushing legislation to close a tax loophole that gives an advantage to loose pipe tobacco and retailers with roll-your-own (RYO) machines.

Yesterday, U.S. Sens. Dick Durbin (D-Ill.), Frank Lautenberg (D-N.J.) and Richard Blumenthal (D-Conn.) introduced the Tobacco Tax Equity Act to close loopholes in the tax code that allow tobacco companies to avoid the federal cigarette and RYO tobacco tax. Pipe tobacco is currently taxed at a lower rate than cigarettes, leading some companies to offer the option of purchasing pipe tobacco and allowing customers to roll their own cigarettes to avoid paying the federal cigarette tax.

"The current loopholes in the taxes on tobacco products encourage the use of products like pipe tobacco, smokeless tobacco, and 'nicotine candies' as a cheap source of tobacco, particularly among young people," Durbin said in a statement. "This difference in tax rates doesn't make sense, and we are already seeing tobacco manufacturers abusing them by changing the labels on their products to avoid paying the higher tax. This bill will stop tobacco manufacturers from gaming the system and protect more children and teens from this dangerous habit."

RYO has grown in popularity as adult smokers face increasing cigarette excise taxes in many states as they continue to battle economic challenges.

Blumenthal added that this measure "equalizes the federal tax rate for all tobacco products to that of cigarettes" and is expected to generate more than $1b billion in revenue.

The Tobacco Tax Equity Act would create tax parity by establishing the tax rate on all tobacco products at the same per unit level as cigarettes. Under current law, small cigars and RYO tobacco products are taxed at the same level as cigarettes; however, cigars, smokeless tobacco and pipe tobacco are taxed at a lower rate.

The tax disparity was a one of the four key points convenience store leaders brought to federal lawmakers at the NACS 2012 Day on Capitol Hill in March, as CSNews Online previously reported. According to NACS -- the Association for Convenience and Fuels Retailing -- background information, RYO cigarette tobacco has been taxed at $24.78 per pound while RYO pipe tobacco has been taxed at $2.83 per pound dating back to 2009.