I had the pleasure to talk with Jeff Steinbock from Uhles Tobacco Company of Wisconsin to get an inside perspective on the new Tax Parity Act H.R. 4439. Jeff was a natural choice. Uhles Tobacco Company has been part of the Wisconsin culture since 1939, serving retail customers and offering products wholesale to Brick & Mortar stores around the country. Jeff bought the business with his brother in 1982, and several years ago became sole owner when his brother retired. Jeff said he’s been in the business since he was 19, and, as he is a pipe and cigar smoker, there can be no better person at the helm of such a well-known company. Although pipe tobacco forms the bulk of the operation, Uhles also has a wide selection of cigars and other products for the discriminating smoker.
Jeff and I talked quite a bit about the new Tax Parity Act and how he thought this was going to affect the individual pipe smokers. Jeff agrees that the price increase is going to be a major hardship, stating that this was going to be a massive increase the likes of which we have never seen before. Citing the Wisconsin market specifically, he explained the breakdown of the tax. If a pound of tobacco cost him $20 now, it would cost him $45 per pound after adding the new tax. Now, in Wisconsin, he explains that their OTP (Other Tobacco Products) Tax adds another 71% on the TOTAL, not onto the original cost of the tobacco. It’s important to remember this is all before Jeff must figure in his costs, packaging, labor, etc. One of the important questions that Jeff raises is about the “tax on tax” situation. In Wisconsin, the OTP tax is actually taxing the Federal tax and Jeff questions the constitutionality of this. It’s something he thinks could possibly provide a little relief if it is fought.
I was quite surprised to hear Jeff’s anticipated timeframe for this law. He thinks we could see this go into effect by April, just in time for the Anniversary of the passing of SCHIP. SCHIP added the RYO (Roll-Your-Own) tax, which ultimately led to our current dilemma when RYO companies repackaged their products as pipe tobacco to avoid higher tax rates. It was clear to Jeff that this isn’t something that is going to wait until next year or the year after — it is going to be quick. This is a small amendment and can be snuck into a larger bill without much issue.
I threw a curve at Jeff with my next question, wanting to know his opinion on the RYO Industry labeling its product as pipe tobacco, so I asked him if they screwed us. Jeff pulled no punches in saying he appreciated the RYO’s right to exist, but, yes, they put us between a rock and a hard place. The reality, he said, is that we must put ourselves in the shoes of a small RYO company. They get nailed with an unreasonable tax as a result of SCHIP, jumping their tax rate from $1.10 a lb. to $24.78 a lb. all at once, and they did what they had to do to survive.
But what the government doesn’t understand, Jeff said, is that the typical RYO customer is your blue collar Average Joe who comes in with a couple of bucks in quarters, a crumpled up dollar bill and just wants to get some tobacco. Suddenly, the government raises the taxes and it’s no longer affordable for him. It likely will not stop them from buying, but now they must scrimp and save just to afford an ounce of tobacco. So the RYO industry changes it’s marketing plan just to stay alive. When the government sees this, they figure they’ll just tax pipe tobacco at the same rate. Instead of fixing the mistake, they are just going to make a bigger mistake.
But Jeff thinks there could be a solution more favorable to smokers. He spoke of the European government and how it defines the differences between pipe and cigarette tobacco. Moisture and cut are unique to each variety of tobacco, and, in Europe, they use these differences to define the type of tobacco. Jeff’s simple solution: roll the tax on RYO back to a reasonable rate, maybe $8-9 a lb., adopt the European definition, and allow not one but two industries to survive. This was a kneejerk reaction, according to Jeff, and the government is too apathetic or too lazy to worry about the difference between the industries. Again, he echoed his mantra of “fixing a mistake by making a bigger one.”
In light of the bill, pipe smokers are wondering, “What can we do to combat this?” Unfortunately, Jeff doesn’t have a magic solution, but from a retailer standpoint, he says part of being in business is being politically active. Local groups, shops, etc. need to band together and fight, putting aside economic competition. He believes that going to public hearings and speaking in front of the assembly are some of the best approaches. Putting a face to this is important. Jeff explains how a local coalition of retailers, The Cigar Store Alliance of Wisconsin (C-SAW) fought the Wisconsin smoking ban this year. Though they could not stop it, the managed to obtain exemptions for their stores and got the state cigar tax capped at $.50. It’s all about sticking together, there is strength in numbers.
The key, he said, is strength in numbers. If you are sitting on the sidelines thinking, “I’ll fight it when it gets worse,” you are in trouble, he said. It is at the point where we need to fight this and fight it like we have nothing to lose. When I asked Jeff about “stocking up,” he said it only goes so far. We need to be active and proactive. Hand out flyers at your local shop; try to get your local shops to work together because there may be no second chance.
Since H.R. 4439 appeared, pipe smokers have harbored anger toward the RYO community. Jeff encouraged people to keep their hard feelings but direct them at the right group. The hard feelings should be directed at the government, he said. The RYO industry is just trying to survive. If we don’t fight this now and fight it hard, Jeff feels cigars will be next. It’s not going to end with pipe smoking because it didn’t end with RYO.
Jeff warned that, if this passes, there could be a drastic reduction in stores specializing in pipe smoking. His biggest concern is the suppliers. How long, he asked, will the large tobacco distributors keep dealing with pipe tobacco at those tax rates? There is a good chance they will focus more on cigars and other tobaccos. Major retailers and the big drug stores will certainly drop OTC pipe tobacco like a hot potato. It just won’t be worth it anymore. When I asked Jeff if he thought this could put him out of business he was clear that he didn’t think so, but explained that this will change a lot with packaging and how they will market pipe tobacco to the customer. With a situation like this, your only hope is to be the last one standing.
If the government would just leave the pipe tobacco industry alone, Jeff said, it could remain strong and continue contributing to the economy. When he started smoking a pipe, there was often a stigma to it, but that is gone. Although not growing quickly, pipe smoking is growing. People are again finding enjoyment in pipe smoking, which had become the forgotten branch of the industry. If we fight this tax, hopefully we can watch this grow even more.
Uhles Pipe Tobacco Company Inc. is located at 114 W. Wisconsin Avenue, Milwaukee, WI 53203. You can check out their web-site at www.uhles.com. If you are so inclined, you can call them toll free at 1-800-877-7024. If you would like information on the steps that Jeff and his staff are taking to fight this law, please feel free to contact them, I’m sure they would be more than willing to spend some time with you.