Tobacco Cos. Exploiting 'Little' Cigar Loophole?

Tobacco companies appear to be exploiting a loophole to avoid an excise tax on little cigars, the Wall Street Journal reported Sept. 23.

Last year, Congress increased the excise tax on little cigars, which are filtered and about the same size and shape as cigarettes. Since then, several tobacco companies appear to have slightly increased the weight of the little cigars so they qualify for the lower tax rate that applies to large cigars. 

According to the federal Alcohol and Tobacco Tax and Trade Bureau, sales of products defined as large cigars have increased fourfold since the tax hike, while sales of little cigars have dropped 79 percent. The Wall Street Journal said that those figures, coupled with an ongoing drop in cigarette sales, suggested that cigarette smokers were switching to cigars because they were cheaper.

Filtered cigars “blow off the shelves,” said Andrew Beaupre, a tobacco retailer in Iowa. In his store, filtered cigars sell for as low as $1.27 a pack, compared to $3.27 a pack for the lowest-priced cigarette he offers.

U.S. Rep. Henry A. Waxman (D-CA) who chairs the House Energy and Commerce Committee, is leading an investigation into whether makers of the little cigars are evading taxes. The committee sent letters to six tobacco companies in April, requesting information on how the cigars are marketed. 

The committee is also investigating whether filtered cigars violate last year’s ruling by the Food and Drug Administration (FDA) banning flavors in cigarettes except for menthol. Little cigars are often given sweet flavors like wild cherry and peach, and may be targeted at the youth market. If filtered cigars meet the FDA’s definition of a cigarette, the ban would apply to them as well. 

The Campaign for Tobacco-Free Kids has said it wants Congress to close the tax loophole by tightening its definitions of cigarettes, little cigars, and large cigars. It is concerned that filtered cigars’ sweet flavors and low prices make them appealing to minors.