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Cigar purveyors ready to light up after state tax cap clears senate

October 4, 2012
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Michigan cigar smokers and sellers may want to celebrate with a nice Cuban when they read this.

The Michigan Senate approved a bill last week that would cap the cigar tax at 50 cents each. Currently, Michigan's per-cigar tax sits at 32 percent of wholesale. The senate bill, SB1004, has now been forwarded to Gov. Rick Snyder, who is expected to sign the bill shortly, bringing the new legislation into effect Nov. 1.

The problem has been that cigar retailers have increasingly become "tasting rooms" for manufacturers, said Mike Nolan, president of the Michigan Premium Cigar and Pipe Retailers Association. Large manufacturers put a cigar on sale and customers go to the store for a sample but then go online to buy. It's been "absolutely impossible" for the industry with the tax at 32 percent, Nolan said.

It's estimated that more than 60 percent of all premium cigars consumed in Michigan are from out of state and not captured by the state's cigar tax, according to Mark Renzenbrink, owner of Tuttle's Select Cigars and Tobaccos.

"A lot of our brick and mortar retail were losing business to the Internet," said state Senator Arlan Meekhof, R-30th District, the bill's main sponsor. "The light bulb went on when people started realizing how much tax revenue the state was losing by not capping this tax."

Renzenbrink added that the bill is a win-win for consumers, retail and the state of Michigan.

"This legislation helps retail because now we sell more product; it helps the consumers now saving money on the product; it helps the state because that 60 percent of the cigars not being taxed now keeps the money in our state," he said.

Both Renzenbrink and Nolan are optimistic that the state will retain customers and revenue.

"It definitely is going to be advantageous to keep it in the state," Renzenbrink said. "Now, the prices are going to be competitive with most major online and the catalog sales outlets outside Michigan. The playing field has been leveled."

Two major groups served to lobby the legislation, Renzenbrink said: the International Premium Cigar and Pipe Retailers and MPCPRA.

It took about eight expensive years for that light bulb to finally turn on, Nolan said. About $3,000 a month was being spent by the IPCPR and MPCPRA for about five years to fund the lobbying, data gathering and legislation to change the senate's mind.

"Everything is related — that's the problem," Nolan said.

Similar cigar legislation has been enacted in states such as Washington, Oregon, Rhode Island, Iowa, Connecticut and Wisconsin, producing favorable revenue results, Nolan said.

"It's the age-old lesson of capitalism: You sell more, people make more money and good things happen," Nolan said. "If you work hard, government will respond and fix things that are wrong. It's an important lesson for anyone who's having government interference with their business. Don't give up."

When asked what kind of cigar he was going to smoke in celebration, Nolan chuckled and said "an expensive one."

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