SC Missing Out on Millions in Cigarette Taxes from Cigarette Lookalikes

When South Carolina lawmakers raised the state cigarette tax by 50 cents a pack last year, they said the higher price would discourage some people, especially teens, from smoking and it would bring in more revenue for the state. But convenience store shelves are now stocked with "little cigars", which look like cigarettes but don't meet the legal definition, so the state doesn't charge the cigarette tax and is missing out on millions of dollars.

"They look like cigarettes. They're packaged like cigarettes, but the 57-cent cigarette tax per package does not apply, so they're much less expensive for consumers to buy, particularly kids," says Sen. Joel Lourie, D-Columbia, one of the sponsors of the higher cigarette tax.

He has introduced a bill in the state Senate to close the loophole by broadening the definition of cigarettes to include the little cigars now on store shelves. It'll be next year before the bill could pass, though.

The problem was brought to his attention by Tom Jackson, of Columbia.

He says, "I was in the candy and tobacco business and, at a convention five years ago, we saw this coming in, where states had raised their tobacco tax and these fake cigarettes were at the trade show."

He says a study in Massachusetts estimated that it was losing $10 million a year in cigarette taxes because of the little cigars. While Massachusetts has a larger population than South Carolina, South Carolinians smoke more per capita, so he thinks our state is probably losing about as much in taxes.

The problem is that cigarettes are partially defined by weight. State law says one thousand of them together weigh three pounds or less. "Well, what these companies did, the fake cigarettes, they made it weigh 3.1 pounds per thousand, adding a little weight to come through that loophole," Jackson says.

Sen. Lourie's bill would raise the defined weight to four-and-a-half pounds or less per thousand, which would mean little cigars would be included and taxed.

Both men say their biggest concern is that the lower price of the little cigars is attracting teenagers. A pack of little cigars costs around $1, compared to $3 for the least-expensive cigarettes, $4.59 or more for premium brands.

But there's something else that makes the little cigars attractive to teens.

"Our law restricts the ability to market flavored cigarettes," Sen. Lourie says. "But because these are not right now by weight defined as cigarettes, they can market flavored cigars. And this is a very hot, appealing item to young people."

The little cigars come in all kinds of flavors, including grape, strawberry, wild cherry and vanilla.

But Jim Deer, secretary and general counsel for Prime Time International Company, which makes little cigars, says he does not think the flavors appeal to teenagers because the tobacco used in little cigars is much harsher than what's used in cigarettes.

For that same reason, he doesn't think cigarette smokers are switching to little cigars just because they're cheaper.

"Somebody who's been smoking cigarettes is not really likely to change to cigars as a preference item because, as I say, the harshness, flavor and all of that is such that they don't give themselves to smoke a pack a day or anything like that," he says.

He also says little cigars have been around for decades, so companies are not making them as a way to get around higher cigarette taxes.

But the U.S. Congress is investigating whether that's the case. It passed a higher federal excise tax on little cigars in 2009, but some little cigar makers then raised the weight of their products so they would qualify as large cigars and would not be subject to the higher tax.