If passed, Prop. 29 would raise the state excise tax by $1 (five cents per cigarette) to $1.87 per pack for cigarettes, with equivalent tax increases on other tobacco products, including cigarettes, cigars and pipes. The funding would be used for cancer research.
The tax on cigars and other tobacco products could approach 32 to 55 percent of the wholesale cost, which, according to the cigar industry, represents a 73-percent increase over the current tax.
The impact of the tax could be paralyzing to the approximate 200 boutique cigar shops in California, according to local retailers.
“If this tax increase does happen, I guarantee you it will shut us smaller cigar shops down,” said Sarrah Soza, part owner and vice president of Cigar Mas Fino of Fresno.
According to Joel Lopez, owner of Perfect Blend Fine Cigars in Fresno, the recession has already chopped the tip off of cigar sales.
“It seemed like a lot of our customers were finally stabilizing financially, which was helping us, but then to be faced with this tax increase, it’s not a good thing,” Lopez said.
Keith Park, president of the Simi Valley-based trade group Cigar Rights of America, feels particularly irked out-of-state groups have put this proposition on the California ballot.
The American Cancer Society, American Heart Association and American Lung Association wrote the proposition. The measure is also called “Hope 2010: The California Cancer Research Act.” However, that does not mean the funds will necessarily go to California cancer research efforts, Park said.
“This proposition is going to collect from the state of California, but is going to spend it outside of California and will not do anything to reduce our $10 billion budget deficit and will destroy businesses within the state,” Park said.
According to the measure’s language, the funding will be directed at research and facilities within the state, as well as smoking cessation and prevention efforts in California.
Park, who also owns Prometheus, a cigar shop in Los Angeles, and Gods of Fire, a cigar accessory company, believes the additional $735 million the proposition expects to raise from the tobacco excise tax annually is an inflated number.
He argues while it may generate around that amount of revenue its first year, another result will be the price of cigars increasing, sales falling and stores going out of business and producing less tax revenue in the process.
“The state of California will come out as the loser because it will collect less tobacco tax and less sales tax,” Park said.
Proponents of the tax say “Big Tobacco” is spending millions of dollars to fight this measure, which they say would save 104,000 lives and stop 225,000 kids from beginning to smoke.
The Sacramento Bee editorial board recently endorsed Prop. 29, writing, “To discourage smoking and save lives, California must again raise the tobacco tax. It must again overcome the specious arguments and hired guns of the tobacco barons.”
Cigar shop owners argue Prop. 29 will not reduce the amount of smokers in the state, but will create a black market for tobacco.
If the price on cigars in California rises dramatically, the opponents of Prop. 29 anticipate, instead of giving up smoking, cigar enthusiasts will simply go out of state to purchase their cigars and illegally bring them back into the state.
“They will turn tobacconists into crooks and then they will have to go out and spend millions to fight the tobacco black market,” Soza said.
Prop. 29 opponents also argue, in addition to creating a black market, the state of California will not collect any tax dollars on cigars or cigarettes purchased outside of its borders.
Many of the owners of the cigar shops also believe they are not the intended target of the tax, but will still feel the impacts, nonetheless.
“These sin taxes are always aimed at cigarette smokers and the gentlemanly pastime of enjoying a handmade cigar is always unfairly impacted as well,” Soza said.
Micah Johnson, owner of Cigars Ltd. of Fresno, believes this tax increase will be devastating to the statewide cigar shop trade, but will not put him out of business.
He points to surviving 1988’s Prop 99, an increase of the tobacco tax by 25 cents per pack approved by California voters.
“I just became stronger because of it,” Johnson said. “I just tightened my belt and everyone else went out of business. But that was just because I was willing to suffer for a couple years.”
Lopez also doesn’t think the tobacco tax will put his store out of business, but he acknowledges it is a possibility. However, he believes there are a significant number of shops statewide that will certainly be shut down if the Proposition is passed.
“Those stores that were barely surviving the recession, this will definitely shut them down,” Lopez said. “People will lose their jobs over this.”
However, Johnson argues, this will ultimately make the large cigar companies stronger by putting so much of their competition out of business.
“It’s not the small boutiques, it’s the Phillip Morrises of the world that seem to get richer with these taxes,” Johnson said.