Small Cigarette Makers Could Pay Extra Tax

Small cigarette makers could be facing a tax increase after the 2013 legislative session if three large tobacco industries get their way. The Texas House Ways and Means Committee held a hearing Tuesday in expectation of a cigarettes tax law that will maybe come up in the next session. The legislation would essentially impose an extra tax on small tobacco companies to regulate what the big tobacco companies call a competitive benefit because of high pricing. In an equal law that failed to pass in the last session, authorities estimated that the taxes would result in an extra $25 million for the state.

The three large cigarette makers, Philip Morris USA, R.J. Reynolds Tobacco Company and also Lorillard Tobacco Company, at this time pay the state extra charges under a 1998 lawsuit settlement in which the Texas alleged they were misleading tobacco consumers about the health reflection of their smoking products, and advertising to kids. Because they pay more fees, their cost per cigarettes carton is more.

Keith Teel, a lawyer who represents the big tobacco companies, declared the committee that this competitive disadvantage has ended in those companies losing 10 per cent or more of their tobacco market share, which used to be 98 per cent before the fee was enforced.

The smaller tobacco companies argued that they did not mislead their clients, so they weren’t sued and are therefore not part of the settlement. But Teel argued that the settlement was about more than that. He said that the fees make up for health care costs devolved by the state because of smoking and that all tobacco companies should therefore be subject to such a fee.

“Right now, you’re not getting anything to cover health care costs incurred by the products they sell,” Teel told the committee.

Yolanda Nader, chief executive at Dosal Tobacco Corporation, said the small tobacco companies can’t give an additional tax, which would in the end put them out of business cost the state money in the long run.