PCA Position Statement and Background on Tax Caps

PCA | March 23, 2023


The Premium Cigar Association is actively working with state associations, retailers, and coalition partners to introduce and support tax cap legislation in the states. The goal of this state legislation is to reduce the tax burden on retailers and consumers, alike, and to create a robust marketplace to sell premium cigars. The association aims to support legislation that can provide relief to the most number of products sold by our retail members, and to use the available definitions of cigars, that can best suit the legislative climate in a given state. The “large cigar” tax definition encompasses the most number of products, but because of it’s inclusion of non-premium machine made and flavored cigars, the use of this definition is not acceptable in every state. To pursue tax relief in more challenging legislative environments, the association will utilize the definition of “premium cigars” used by the Judge Amit Mehta opinion in Cigar Association et al v. Food & Drug Administration. Tax caps for premium cigars are essential in promoting a robust brick and mortar marketplace, especially in states with challenging tobacco tax and regulatory environments. 

Tax caps are by their very nature a retailer issue. The Premium Cigar Association, in its pursuit to promote the “business of specialty tobacco retailing,” as enshrined in the association’s mission statement will leverage resources to exert leadership on this policy issue. The association is developing state specific legislation and will assist in developing communications and policy options in coordination with local retailers and state associations. 


Increased revenue to the state: Thirteen states have adopted a cigar OTP tax cap, which has led to enhanced sales for local retailers, amd increased revenue for the state. After implementing a tax-cap on cigars in Wisconsin, cigar tax revenues to the state nearly doubled in just two years. In 2012, Michigan introduced a five-year sunset clause of $0.50 tax cap provision to determine what the revenue impact might be. After a two-year extension, the cap was made permanent in 2019 after realizing a significant increase in revenue.

Increased sales for small businesses: Tobacconists across the nation are struggling to compete against other states that have a cap, lower tobacco taxes, and with the remote sale of cigars where no excise tax and in some cases, sales taxes are collected. A number of shops have closed their doors, taking with them jobs, lost tax revenue, and viable small businesses that are the cornerstone of main street busness communities. Cigar tax-caps have led to increased sales for small business owners, which is an argument at the forefront of why they are necessary to implement and preserve. Tax caps are becoming a common approach to state tax policy.


The reason for having a different tax (or tax cap) applied to premium cigars is simply because the sales dynamics around cigars and the products themselves are different from the other products lumped into the OTP category. Handmade cigars are found predominately in premium cigar shops, are kept in climate-controlled humidors, and are enjoyed by adults averaging 26 to 56 years of age. All other items in the OTP category, such as smokeless and little cigars, can be found in several types of stores, ranging from convenience stores, gas stations, corner stores, and would not be affected by the proposed tax cap for premium cigars. These products would continue to be taxed at the regular OTP rate. Why? Because the wholesale cost of these items is much lower than premium cigars.


PCA urges legislatures to consider creating a tax cap on cigars. This could lead to increased revenue for the state, increased sales for small business owners, and a more competitive environment for small business cigar stores. The premium cigar industry is an important and unique part of the economy, providing jobs and supporting small businesses in communities across the country. PCA and its members are committed to ensuring that adult consumers have access to a diverse selection of high-quality, artisanal products.


There are several tax caps being considered at the state level and our grassroots action alerts are publicly available on cigaraction.org. If you have questions about your state’s tax caps, prospective tax cap, or state policy please reach out to Glynn Loope glynn@premiumcigars.org.

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