North Carolina cigar tax changes have champion in state senator who owns cigar shops

An obscure provision in the state Senate tax package that would change the excise tax on cigars has a supporter in the person of Senator Todd Johnson, a member of the House finance committee and owner of a cigar shop.

the disposition cap the excise tax on individual cigars at 30 cents and extend the tax to online cigar purchases.

The North Carolina current has a 12.85% tax on cigars with no cap. According to the supporting documents for the bill, the proposed change “would phase out the tax on amounts paid by a dealer in excess of $ 2.35 per cigar”, with an impact on “premium or hand-rolled cigars” more expensive, rather than less expensive machine-made cigars that “are unlikely to hit the cork”.

Think of cigar lounges versus gas stations.

Even with the cap, the change is expected to generate more revenue for the state, as taxes would apply to cigars purchased online. In the next fiscal year, the cigar tax would generate an additional $ 3.7 million; in five years, it would bring in an additional $ 12.4 million, according to the tax analysis accompanying the bill.

In an interview last week, Johnson, a Republican from Union County, said he had no conflict of interest in working or voting for the bill as it applies to all sellers of cigars, not just at its stores.

“There are countless different cigar vendors in the state,” Johnson said. “There will be nothing personal for me. I’m just an industry advocate. I believe in the industry. I think we are providing good service.

Johnson and his family also own Johnson Insurance Management, an insurance company. He said the cigar trade was a side business for him.

It is important that elected officials with professional expertise and real-world knowledge review proposed policies, he said. The people who deal with politics shouldn’t be the ones “in a white tower” who “don’t really understand the ramifications of the changes they make,” he said.

In a follow-up email, Johnson said he would seek advice on voting on the bill.

“I intend to speak with State Ethics to get a formal opinion to be on the safe side before making this decision. There is no financial gain that will be personally realized in this legislation, and in reality it could potentially be the opposite as we are operating a website that is not based in NC and we are shipping in NC, ”he said. -he writes. “Our website is held to the same standards as all other external websites which would put our website on a par with NC bricks and mortars. It is simply sound fiscal policy and the right thing to do.

“My first requests to people who fully understand the ethics policy are that this provision does not benefit me personally and applies to everyone who sells cigars in North Carolina as well.“

Senator Paul Newton, co-chair of the Senate finance committee that heads the bill at committee hearings, referred questions about the excise tax on cigars to Johnson, calling him “the expert.”

Newton agreed that under the ethics rules it wouldn’t be a conflict for Johnson to vote for the tax package, but it would be Johnson’s choice.

Jane Pinsky, Director of NC Coalition for Lobbying and Government Reform, said Johnson’s vote would be allowed under the rules, but also expressed concern.

“If he treats all cigar shops the same, it is within the letter of the law,” she said. “In the spirit of the law, I hope he does not vote on the bill.”

Trust in government has eroded in the 20 years since the state passed a revolutionary set of state ethics laws, Pinsky said.

“I think it’s incumbent on the legislature to help restore that confidence,” Pinsky said. “I think most people sit in the General Assembly for the right reasons. They believe in what they are doing.

“Our system of government depends on the full faith of the people. Anything that the legislator can do to maintain this total faith is important. “

She referred to former Republican Rep. Paul Stam’s decision not to vote on a budget because his wife’s family was going to get money from the state Department of Transportation for land like “the gold standard ”.

It is not uncommon in North Carolina for lawmakers to work or vote for legislation that would benefit their businesses or industries.

Among the best-documented examples is former Speaker of the House of Representatives Jim Black, a Democrat and optometrist, who introduced a requirement in the state budget that all children undergo comprehensive eye exams before d ‘enter kindergarten.

Former state lawmaker Wendell H. Murphy of Murphy Farms has co-sponsored and voted on bills during his 10 years in legislature that have helped the pork industry.

In the interview, Johnson said the benefits of the proposal include taxation on cigars purchased online, which are currently untaxed. And the proposed cap would make excise taxes on cigars lower than they are in border states. South Carolina has a tax of 5% of the manufacturer’s price; Tennessee has a tax of 6.6% of the wholesale cost price.

Johnson said he had a store in Aberdeen, a town in Moore County. It also has a shop at Indian Trail in Union County, about 35 miles from Rock Hill, SC In the interview, Johnson said he didn’t expect the tax package to benefit his stores. He said he didn’t think people were bypassing his Indian Trail store to save 20 cents on a cigar bought across the state border.

However, consumers cross state borders to purchase low tax cigars. New Jersey state assembly member Brian Bergen proposed lowering the state’s excise tax on cigars last year as residents drive to buy them in Pennsylvania, a state without excise tax on premium cigars. In a press release, Bergen referred to a study that found at least 200 high-end cigar stores in Pennsylvania near the New Jersey border.

Nathan C. Goldman, an assistant professor of accounting at Poole College of Management at NC State University, said in an email that the cap would benefit both sellers and buyers of cigars. North Carolina brick and mortar stores would be more competitive than South Carolina ones, for example, Goldman wrote. Cigar smokers would benefit from lower prices.

“Previous studies tend to show that tax costs are borne more by the buyer than by the retailer,” Goldman wrote.

North Carolina is part of a national effort to tax online cigar purchases, said Mark Triplett, a Virginia consultant who works on tobacco tax statutes and has worked with the Federation of Tax Administrators non-profit. He has met with officials from over a dozen states regarding online tax collection on behalf of a coalition of premium cigars. The cigar section of the North Carolina bill is based on model legislation passed in Maryland a few years ago, Triplett said.

The 2018 U.S. Supreme Court ruling South Dakota vs. Wayfair ruled that states can require businesses to report and pay sales taxes even if they do not have a physical presence in the state.

Cigar makers predicted that states will want to start collecting taxes on online sales and want to ensure states adopt uniform systems, Triplett said.

“These people are looking for as much consistency as possible from state to state,” said Triplett.