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Tobacco Giants Clash Over Virginia's Excise Tax

RICHMOND, VA. -- Two Virginia tobacco giants -- Richmond-based Altria Group and Swedish Match's Chesterfield County-based North American operations -- are clashing over the state's excise tax, and the battle could have echoes across the country, according to a recent media report.

As reported by the Richmond Times-Dispatch, the question coming between the two is whether or not the state should levy the excise tax by the units sold -- as Altria wants, with its relatively more expensive premium brands of snuff -- or should it levy a tax that's a percentage of the price, which is the position urged by Swedish Match now that it has carved out a healthy chunk of the market with its less-costly brands.

"Imagine you're in a Cadillac and I'm in a junker and we're driving up to the toll booth. Are you going to feel it's fair if your toll is twice mine?" said William Phelps, Altria spokesman, in the report.

However, Gerry Roerty, Swedish Match's vice president and general counsel, sees it differently: "We have a market that's developed with one kind of tax, where someone has seen market share fall from 80 percent to 50 percent, and now we're talking about a change," he told the newspaper. U.S. Smokeless Tobacco Co., long before Altria acquired it in 2009, once had about 80 percent of the smokeless market, according to the report.

The proposed change in the state's excise tax would mean lower-priced products, such as Swedish Match's Timberwolf, will likely see higher taxes, while premium brands such as Altria's Copenhagen and Skoal will pay less, the newspaper reported.

Virginia now taxes smokeless tobacco at 10 percent of the wholesale price. Legislation in the state Senate and House would change the tax to 18 cents an ounce for moist snuff.

Both bills originally left the 10 percent tax on other tobacco, including the old fashioned "loose-leaf" or chewing tobacco, such as Swedish Match's flagship Red Man brand. But Republican Sen. John Watkins amended his legislation to include a proposal from Swedish Match to tax loose-leaf tobacco on the basis of units of sale. The bill proposes a 21-cent tax on small pouches of loose-leaf chewing tobacco, which are usually 3 ounces and account for most sales, rather than a per-ounce tax. Larger pouches would pay at different rates, a complication that has drawn opposition from the wholesalers who pay the tax.

On a per-ounce basis, the loose-leaf tobacco rates in Watkins' bill would be lower than the proposed snuff tax, but Swedish Match's Roerty said that reflects the fact that chewers use about three times as large a pinch at a time as do snuff dippers.

Texas didn't make that distinction, and with the higher rate it levied per ounce, pushed the price of a carton of 12, 3-ounce bags to close to $100, according to the report.

"People drive to Oklahoma now for Red Man; it's disappearing from the shelves," Roerty noted. "Loose-leaf has been shrinking 7 percent to 10 percent anyway, but the Texas tax just about wiped us out. ... Wholesalers and retailers say our customers can't pay that and we're not going to order it, and I can't really blame them."

His hope is that if Virginia makes the change, Texas will listen and follow suit.

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