I focus on the tax issues of individuals, businesses & more
How often does somebody walk into a convenience store and ask to buy a pack of taxes ? Well it is a slight exaggeration to think of a pack of cigarettes that way except maybe in New York City where the combined local and state tax is $5.85. Don’t forget that there is a federal tax of about a buck a pack. It is not surprising that people look for ways around the taxes. One of the first underworld jobs of my hero, Repairman Jack, was driving cigarettes from Virginia to New Jersey. You can read all about it in Cold City by F. Paul Wilson. There are some legal ways, but they have drawbacks.
Roll Your Own
After finishing a year in VISTA, I spent the summer of 1975 in Worcester, MA living in a rooming house and showing up at Manpower every morning for day labor assignments. The laundry room at St. Vincent’s hospital was one of the more pleasant assignments. One of my fellow laborers clued me in to the great price advantage of rolling your own cigarettes. I favored Bugler. The image on the pack always made me think of From Here To Eternity
I never got very good at it. Senator John McCain’s grandfather, Admiral John “Slew” McCain, learned how to fly when he was in his fifties so he would be eligible to command aircraft carriers. Pretty impressive. What really impressed people, though, was that he could roll cigarettes with one hand. He favored Bull Durham.
Hand rolling being such a difficult art, entrepreneurs came up with an alternative. You go to their store buy loose tobacco and papers and they let you use their fancy machines to make your own cigarettes. That loophole was closed last year. Roll your own shops are treated for excise tax purposes in the same manner as manufacturers.
The next frontier of cigarette excise avoidance is more high tech than rolling your own. Ilana Greene introduced me to Kevin Frija then CEO of Vapor Corp. E-cigarettes work by vaporizing a liquid solution into an aerosol mist. There is no reason, in principle, for them to look anything like regular cigarettes, but they frequently do, even going so far as to having the tip glow when you inhale. There is still controversy about their health effects. There seems to be a pretty good argument that they are probably not as bad for you and those around you as regular cigarettes. With an e-cigarette your nicotine is delivered with propylene glycol and vegetable glycerin rather than tar and ash. Second hand smoke is mainly from you exhaling rather than continuous. Let’s not forget that according to FEMA, about 1,000 people per year die in fires caused by what is euphemistically referred to as “the careless disposal of smoking materials.” MacGyver could probably figure out how to start a fire with an e-cigarette, but there is probably not a way it could happen by accident.
Given all that Mr. Frija said that he thinks that the government should be figuring out ways to subsidize his company’s product rather than tax it. He also indicates that it is rather challenging to figure out how to apply the same tax to e-cigarettes since the excises tend to be based on weight of tobacco. E-cigarettes don’t have tobacco. Of course, the ones that have nicotine have a tobacco derived substance, so you could probably do some fancy math and figure out a tobacco weight equivalent.
There is a push to tax e-cigarettes like regular cigarettes. The latest threat was in Utah. The debate centers around how good or bad these things are for people, but there may be another factor at work, which is a problem created by sin taxes. The taxes may first be pitched to discourage the bad behavior, but the taxes are a revenue source. If they successfully redirect behavior, revenue declines. Consider this story from Sacramento about the fiscal havoc wreaked by people becoming more scrupulous about obeying the parking laws. There you are talking about fines rather than taxes, but the distinction is often pretty thin.
Probably the best course to avoid tobacco excise taxes, is to not smoke. It works for me.