Clear the Air

HB4541, introduced in the West Virginia House of Delegates, would prohibit tobacco products that have added flavoring including cigarettes, cigars, smokeless tobacco, Hookah tobacco, little cigars and dissolvable tobacco products. Menthol and mint flavors are not included in the definition of “flavored tobacco products.”

This bill is anticipated to taken up by the House Health and Human Resources at 4pm on Monday, February 20th.

Flavored tobacco products entice youth to experiment with (and ultimately become addicted to) tobacco.  The US Food and Drug Administration has already banned flavored cigarettes and this proposed bill would expand that ban to all other tobacco products.

The bill has been referred to the Health and Human Resources Committee and then to the Judiciary Committee.

Legislation has been introduced in the West Virginia State Senate to increase West Virginia’s excise tax on tobacco with a portion of the proceeds directed to tobacco control and other health-related programs.

SB-586 was introduced by Senators Roman Prezioso, Dan Foster and Ron Stollings.

This bill calls for increasing West Virginia’s excise tax on cigarettes by $1.00 to $1.55 per pack and the tax on other tobacco products from the current level of 7% of the wholesale price to 50% of the wholesale price. The proposed legislation would also direct one-half of the tobacco tax revenues, up to $60 million, into a new fund to be known as the “West Virginia Healthy Future Fund”. $27 million from the Fund would be transferred annually for tobacco prevention and eduction programs and the balance of the Fund each year would directed to public health, substance abuse or healthcare-related programs. Revenues beyond what is placed in the Fund would go to General Revenue.

According to the Campaign for Tobacco Free Kids this legislation, if enacted, would generate $152 million in total revenue and would result in a 15% reduction in youth smoking and 17,300 current adult tobacco users quitting. In addition, West Virginia would see a long-term health savings of $667.81 million from these declines.

The bill has been referred to the Senate Committee on Health and Human Resources and then to the Senate Committee on Finance.

The proliferation of cheap “roll-your-own” cigarettes, which seek to evade higher taxes on regular cigarettes, poses both a serious public health problem that encourages more smoking and a serious budgetary problem that is costing West Virginia and the Federal Government much-needed revenue. Because “roll-your-own” (RYO) cigarettes are currently so cheap and under-taxed, they are attractive to price-sensitive kids and encourage smokers to switch rather than quit when faced with higher cigarette costs. The result is more smoking, and more smoking-related death, disease and health care costs.

“Roll your own” is a bit of a misnomer as it relates to HB4428 which targets retail establishments in the State who have installed commercial rolling machines on site and utilize these devices to avoid paying higher state and federal tobacco excise tax. The scheme works like this - customers purchase loose tobacco and paper “tubes” with filters and they are run through the rolling machine. In a few minutes close to 200 cigarettes are produced which are sold at nearly half of the cost of traditional cigarette brands. The largest part of this savings is the result of only paying taxes on the loose tobacco which has a much lower tax rate than cigarettes.

As a result, West Virginia’s 55 cent per pack ($5.50 per carton) is avoided by paying the “other tobacco tax” on the loose tobacco which is only 7% of the wholesale price of the tobacco (about 80 cents per carton). The West Virginia Department of Revenue recognized this problem as early as September 2010 when the issued Administrative Notice 10-26 which stated “Use by a consumer of a machine that manufactures cigarettes and is located at a retail dealer’s place of business is considered to be the illegal manufacturing and sale of unstamped cigarettes.”

The Administrative Notice went further to state this practice “…is a ruse and an illegal attempt to evade the cigarette tax.”

In addition to state tax avoidance even bigger saving comes from the avoidance of higher federal cigarette taxes. Congress in 2009 sharply raised the federal excise tax on tobacco to help finance the expansion of a children’s health-insurance program. Before the federal tax increases, the tax rates for RYO tobacco and pipe tobacco were the same. Since then, federally taxed RYO tobacco sales have declined by more than 60 percent while the much lower-taxed “pipe tobacco” sales have increased by more than 230 percent.

Because of the disparity in the tax rates between rolling tobacco and pipe tobacco many companies simply relabeled their products as pipe tobacco to avoid the higher tax rate. RYO tobacco shops have exploited this further by placing the industrial rolling machines in retail establishments that roll cigarettes from “pipe tobacco”.

“The Wall Street Journal found, store employees or customers insert into the machines tobacco labeled “pipe tobacco.” This substantially reduces the stores’ and smokers’ costs because the federal excise tax on pipe tobacco is $2.83 a pound—compared with $24.78 a pound for the rolling tobacco traditionally used to make hand-rolled cigarettes.” Roll Your Own Cigarette Machines Help Evade Steep Tax - Wall Street Journal  08/30/2010

The tax federal tax differential between the sale of a carton of cigarettes taxed as cigarettes ($10.07) and the equivalent 200 cigarettes rolled from tobacco taxed as “pipe tobacco” ($1.77) is $8.30.

As originally introduced, HB4428, would have defined these retail establishments with commercial rolling machines as “manufacturers” and required them to come into compliance with West Virginia statutes regarding cigarette excise taxes, “Fire Safe” cigarettes and with laws concerning the Tobacco Master Settlement Agreement. This bill was being promoted heavily by the tobacco industry as a “fix” to this problem.

However, the “fix” had problems of its own. While it did address some of the problems regarding these establishments, primarily the collection of state cigarette taxes, HD4428 would have legalized this practice which the State Tax Department had already ruled is illegal and is currently involved in litigation on. Retailers who chose to come into compliance with the state statute would be allowed to continue to operate and continue to exploit loopholes in Federal tobacco tax rates. The result would be the availability of cheap cigarettes in West Virginia.

The Coalition for a Tobacco Free West Virginia (CTFWV) took their concerns on this HB4428 to the House Health and Human Resources Committee last week and urged lawmakers to consider amending the bill to ban commercial rolling machines in retail establishments. The amendment suggested by CTFWV was based on legislation already in place in Arkansas.

In April 2011, as part of Arkansas Attorney General Dustin McDaniel’s legislative package to prevent tobacco tax avoidance and Master Settlement Agreement compliance, the Arkansas Legislature approved Act 836 of 2011 which, among other things, banned commercial rolling machines in retails establishments. Attorney General McDaniel is co-chairman of the Tobacco Committee of the National Association of Attorneys General. As Tobacco Committee co-chairman, McDaniel oversees compliance of about $6 billion in annual payments to the states related to the Master Settlement Agreement with tobacco companies.

On Monday, February 13th, the House Health and Human Resources Committee took action HB 4428 and amended the bill to ban commercial rolling machines in retail establishments. After passing the amendment the Committee passed the bill and referred it on to its next legislative stop, the House Finance Committee.

Advocates wishing to help eliminate the proliferation of these “Roll Your Own” tobacco and prevent access to cheap cigarettes in West Virginia should contact members of the House Finance Committee and urge their SUPPORT of HB4428 AS AMENDED BY THE HEALTH AND HUMAN RESOURCES COMMITTEE to ban these machines from retail settings. The Committee could take this bill up at any time so please contact members as soon as possible.

Members of the house Finance Committee are:

Delegate White - Chair -(304) 340-3230
Delegate Campbell, T. - Vice-Chair - (304) 340-3280
Delegate Anderson - Minority Chair - (304) 340-3168
Delegate Carmichael - Minority Vice-Chair - (304) 340-3115
Delegate Cann - (304) 627-3020
Delegate Guthrie - (304) 340-3156
Delegate Iaquinta - (304) 340-3161
Delegate Mahan - (304) 340-3102
Delegate Marshall - (304) 340-3900
Delegate Perdue - (304) 340-3269
Delegate Phillips, L. - (304) 340-3163
Delegate Poling, D. - (304) 340-3137
Delegate Poling, M. - (304) 340-3265
Delegate Reynolds - (304) 340-3199
Delegate Skaff - (304) 340-3362
Delegate Stowers - (304) 340-3384
Delegate Varner - (304) 340-3187
Delegate Williams - (304) 340-3081
Delegate Andes - (304) 340-3121
Delegate Ashley - (304) 340-3185
Delegate Canterbury - (304) 340-3131
Delegate Cowles - (304) 340-3177
Delegate Evans - (304) 340-3399
Delegate Miller, C. - (304) 340-3176
Delegate Walters - (304) 340-3194

Additional contact information for House Members, including email addresses, can be found here.