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TOBACCO BUSINESS INTERNATIONAL
SEPTEMBER/OCTOBER 2014
CATEGORY MANAGER
PIPE TOBACCO
F
irst the good news: in the last five years, pipe tobacco
has enjoyed a relatively great run—particularly when
compared to other struggling categories of traditional
tobacco. Now the bad news: that run-up is largely—if not
entirely—attributable to the tax implications of the Children’s
Health Insurance Reauthorization Act (SCHIP) legislation
passed in 2009.
In fact, a2012 report by theU.S.GovernmentAccountability
Office (GAO) found that monthly sales of pipe tobacco
increased from about 240,000 pounds in January 2009 to
more than three million pounds in September 2011, while
monthly sales of roll-your-own tobacco decreased from
approximately two million pounds to 315,000 pounds in the
same time frame.
By raising the federal excise tax on roll-your-own tobacco
from$1.09 a pound to $24.78 literally overnight, SCHIPmight
The Problem With Pipe Tobacco
The controversy continues over how to handle
the pipe-tobacco-as-RYO issue.
Product
Federal Tax Rates Through March 31, 2009
Federal Tax Rates on April 1, 2009
Cigarettes
39¢/pack
$1.0066 per pack (rounded to $1.01/pack)
Large Cigars
20.719% of manufacturer’s price;
cap of 4.875¢/cigar
52.75% of manufacturer’s price;
cap of 40.26¢ per cigar
Little Cigars
4¢/pack
$1.0066/pack (rounded to $1.01/pack)
Pipe Tobacco
$1.0969/pound
$2.8311/pound
Chewing Tobacco
19.5¢/pound
50.33¢/pound
Snuff
58.5¢/pound
$1.51/pound
RYO; Cigar Wrappers
$1.0969/pound
$24.78/pound
Cigarette Paper
1.22¢/50 papers
$3.15¢/50 papers
Cigarette Tubes
2.44¢/50 tubes
6.30¢/50 tubes
Taxes Before and After SCHIP
well have sounded the death knell for the RYO category.
However, as everyone knows, a workaround soon emerged
in the form of bagged pipe tobacco, which RYO customers
soon began using in lieu of RYO tobacco.
Of course, this practice—labeled by many as a loophole—
has increasingly come under fire. “Public health officials
have raised concerns that some pipe tobacco might be
masquerading as RYO,” Daniel McGee of Scandinavian
Tobacco Group told attendees of the Tobacco Merchants
Association’s annual meeting earlier this year. “What it
comes down to is that pipe tobacco is not specifically
defined; it’s basically about what label the manufacturer
puts on the bag, or the manufacturer’s intent.”
McGee and others in the pipe tobacco category are
concerned that, in an effort to close the pipe-tobacco-as-
RYO loophole, regulators will simply tax pipe tobacco at the
Source: GAO
