Peer Review Report on RYO/Dual Purpose Pipe Tobacco

If you have been smoking pipes for more than 4 years or so, you are probably aware, even if just superficially, that there has been an issue with pipe tobacco pricing that has been being looked at by the US Dept. of Treasury through the BATFE. The issue is the selling or re-selling of pipe tobacco as “dual purpose” tobacco, that can also be used for rolling your own cigarettes. The issue is simply that the Feds want all your money, and that they do not like people who cheat or ‘skirt’ the rules (again, primarily because the Federal Government does not like competition!).

The funds revolve around something called FET. FET (Federal Excise Tax) is a tax paid by manufacturers in a plethora of industries. In the firearms industry an FET of 10% on all handguns and ammunition is collected, and 11% on all rifles and shotguns. This is a BILLION dollar tax base annually that funds the vast majority of conservation expenses made by the US Government through the Wildlife Restoration Trust Fund (also known as the Pittman Robertson Trust Fund originally passed in the late 1930’s.

FET as it applies to tobacco, is paid in graduated levels based on the product. As an example, there are different rates for cigarettes, small cigars, large cigars, snuff, pipe tobacco, and (the sticking point), roll your own (RYO) tobacco for making homemade, or handmade cigarettes. In April, 2009 these taxes were increased indiscriminately by the Obama Administration in an effort to close what they saw as a loop-hole in their tax revenue. Taxing the cigarette industry into the stone age has been the modus operandi of both the Federal and State level governments for some time now. The reasoning behind it has inconstantly been a health and welfare issue. Their concerns were (at least as they had admitted openly) were only about public health and public safety. But with more and more people rolling their own cigarettes in order to save money and the Federal and State tax revenues collapsing, something had to be done.

In April of 2009 the FET on a point of RYO tobacco went from $1.01 per pound to $24.78 per pound. That’s an increase of over 2,300%! Had any other tax in the history of this nation on any item been raised in such a dramatic fashion, it would have caused open revolt. As an example, using an average of 46 cents per gallon of gasoline, this would cause the price to you at the pumps to go up over $10.50 per gallon!

Getting back to the meat of the issue, at that same time FET on Pipe tobacco only increase from the same base of $1.01 per pound to $2.83 per pound. While that doesn’t seem like much that is still an increase of 180%.Alone those statistics are startling, and naturally tobacco consumers were angry. So in order to ease pressure from the RYO community, free-market tobacco producers began to offer “Dual Purpose” RYO tobacco. Tobacco that could reportedly be used in pipes or to roll your own cigarettes. This further confused the Tax Czars, um, I mean Legislators, to revisit the current tax rates and plans.

Again, this is just review information, and the debate had been raging since the effects of the 2009 increase. This has been reported in other news outlets and tobacco forums and blogs elsewhere, but a recent article in the New York Times Sunday Review titled “Loop Holes in Tobacco Regulation” as rekindled the discussion. Here is a look at their report:

Give the tobacco industry credit for ingenuity. Just when it looked as if federal regulators could block their ability to addict children and young adults, several companies that make cigars and pipe tobacco have sidestepped the barriers by taking advantage of loopholes in federal law. 
One loophole involves a law enacted in 2009 that raised the federal tax on cigarettes, small cigars and roll-your-own tobacco, partly to deter smoking among young people and partly to help pay for a children’s health insurance program. Larger cigars and pipe tobacco, however, were taxed at a much lower rate. 

The balance of the article can be read HERE.

The Peer Review report is equally enthralling. Titled, “Fiscal and Policy Implications of Selling Pipe Tobacco for Roll-Your-Own Cigarettes in the United States”, this will take you on a seriously detailed trip.

A summery of the detailed report shows “Approximately 45 million pounds of pipe tobacco has been sold for RYO use from April 2009 to August 2011, lowering state and Federal revenue by over $1.3 billion.” That’s a chunk of change that tax hungry legislators will be looking to replace, and quickly.

For the intellectually minded, or detail oriented type, take the hour or so it will take you rto devour this report and really get an inside independent look at this tax issue. It is amazing.

Resources:
http://www.nytimes.com/2012/09/02/opinion/sunday/loopholes-in-tobacco-regulation.html?_r=0

FET: http://www.ttb.gov/firearms/faet-faqs.shtml
http://www.nssf.org/newsroom/releases/show.cfm?PR=020110.cfm&path=2010



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