Industry Dodges $250 Million in Taxes on Loose Tobacco

Rebranding loose cigarette tobacco as pipe tobacco allowed manufacturers to avoid an estimated $250 million in federal taxes last year, the Associated Press reported June 5.

A loophole in the children’s health insurance bill passed last year allowed tobacco companies to relabel their products in order to pay the $2.83 per pound on pipe tobacco as opposed to a $24.78-per-pound federal tax on loose tobacco for cigarettes. The new tax on rolling tobacco is earmarked for children’s health programs.

The tobacco industry is now making 2 million pounds of “pipe tobacco” monthly, compared to about 270,000 pounds before the law went into effect.

The Obama administration has pledged to issue new rules to distinguish between pipe and cigarette tobacco but has not yet done so. Also, Congress has not acted on a bill that would equalize the taxes on the two types of loose tobacco.