Caven Wade

(UM Legislative News Service) The Montana Senate is advancing a bill that would reduce taxes on “premium cigars” in the state.

Sen. Greg Hertz, R-Polson is sponsoring Senate Bill 122, which would add premium cigars to a list of nicotine products that are exempt from the state’s 50% tax rate on tobacco products.

“Imagine if you had a business and the product that you sold had a 50% tax on it at the wholesale cost, now that same product that you’re selling is being sold into our state by a business who lives out of state and delivers that product right to your doorstep. They are not subject to that tax,” Hertz said. “You have an unfair competition here.”

A premium cigar is defined as: “Any roll of tobacco that is hand wrapped in 100% whole tobacco leaf, is not wrapped by a machine, and does not contain a filter, tip, or any characterizing non tobacco flavor.” 

SB 122 would drop the premium cigar tax down to 35 cents per cigar.

Under current law, moist snuff and cigarettes are the only nicotine products that are exempted from the 50% nicotine tax in the state. Moist snuff, or chew, has a tax rate proportional to its weight at 85 cents per ounce. Cigarettes have a tax rate of $1.20 per 20 cigarettes in a box.

SB 122 passed out of the Senate Taxation Committee with an 8-4 vote on March 22, and passed a second reading on the Senate floor 40-10 on March 27. It now faces a final vote in the Senate.

“They have a storefront, they pay property tax, they have employees who contribute to the community, and they’re providing a tax base and are responsible businesses to our communities. This bill is about fairness,” Hertz said of in-state cigar sellers.

Hertz said the bill would drop revenue to the state by about $99,000 a year. But, he said, it is unknown how accurate those projections are because it’s hard to tell how much the decreased tax could increase overall sales of premium cigars in the state, which would lessen the loss in tax revenue.

Sen. Russ Tempel, R-Chester spoke against the bill and said premium cigars can be extremely expensive, so a set 35-cent tax would occasionally only be half a percent tax on an item. He said he isn’t completely against the bill and thinks it's an important issue to look at, but it still needs work done on it.

“The way that it is right now I can’t vote for it,” Tempel said.

Sen. Mary Ann Dunwell, D-Helena also spoke against the bill and said that this bill isn’t a fix and this problem should be solved by giving the Department of Revenue the authority to collect the state tax from out-of-state businesses that sell premium cigars and any other products online.

“Our small businesses in Montana are getting short changed because they’re taxed, and some of these online retailers are getting off scot-free. So we need to give the department the means. This bill is not the method to do that, and frankly I'm not even sure this is an issue of taxation. It’s an issue of consumer practice,” Dunwell said.