(The Center Square) – A state lawmaker is proposing a tax cap on cigars sold in Illinois.
State Rep. Jonathon Carroll’s bill would place a 50 cent cap per cigar in place of the current 36% tax. The rate doubled from 18% in 2012.
“This bill corrects something in the taxation system that really hurts some of our local merchants,” Carroll said. “People have more of an incentive to order cigars from out of state than buying them in Illinois.”
Mike Gold with the Arango Cigar Company in Northbrook said when he started in the business in 1981, online sales amounted to about 25% of cigar sales in the country. He said with the current taxes in place, that number has now grown to about 65% of all sales.
"Clearly our brick-and-mortar stores have suffered tremendously during this time period, and now with COVID, many of them are barely surviving and have already closed,” Gold said.
In December 2019, the Illinois Supreme Court struck down the city of Chicago’s ordinance imposing a tax on other tobacco products, or “OTPs.” The court sided with the plaintiff that the city’s ordinance is preempted by the Illinois Municipal Code, which states home rule municipalities that have not imposed “a tax based on the number of units of cigarettes or tobacco products before July 1, 1993, shall not impose such a tax after that date.”
The federal tax cap on large cigars is 52.75% of the sales price, but not to exceed 40.26 cents per cigar.
Julie Newman, president of the Cigar Association of Illinois, said the high tax is actually depriving the state of revenues.
“When consumers want to buy a box they do so where the tax rate is lower or does not even exist at all,” Newman said. “In turn, this deprives Illinois of much-needed sales tax dollars and OTP tax dollars.”
The cigar industry is facing another challenge. U.S. Sen. Dick Durbin has reintroduced a tobacco tax increase as part of a bill that is otherwise intended to address maternal mortality. The Mothers and Offspring Mortality and Morbidity Awareness Act (MOMMA’s Act) would change the tax code and treat the entire tobacco industry as cigarettes. The result is an estimated 500% to 1,000% increase on the tax for premium cigars.
The website Cigar Authority reported the bill would raise the costs for manufacturers, retailers and consumers, and jobs, businesses and the ability to buy and enjoy a premium cigar will be at risk.