The price of cigars in New York state is likely to skyrocket barring a last-minute change to the state’s recently-passed budget.

Last week, New York’s state assembly passed a budget which included a change to the state’s tax system on cigars. The law currently taxes cigars at 75 percent of their wholesale price, though due to some language the state added after a lawsuit, the real tax rate is effectively 28.5 percent of the wholesale price.

Instead of paying a 75 percent tax of the price the retailer buys the cigars from a manufacturer or distributor, the retailer pays the tax on what’s referred to as industry standard, which was set at 38 percent. The idea is that New York’s law was written to tax the products on the price a retailer might pay if they bought them directly from a factory but didn’t take into account the idea of a distributor or the costs of importing the cigars from the factory to the state of New York.

If a cigar has a suggested retail price of $9.50, most retailers would expect to pay half of that from the manufacturer, a $4.75 wholesale cost. The industry standard price would be $1.805 and the taxes owed on it would be $1.35, or 28.5 percent of $4.75.

The new budget would remove that language around industry standard, forcing a retailer to pay a tax of 75 percent of whatever they pay for the cigars. Currently, that $9.50 cigar likely sells for around $12.21 in New York, that price would jump to $16.63 if the tax change takes effect, currently set for Oct. 1.

While the budget has passed, it is not yet signed into law. Gov. Andrew Cuomo has said that he is willing to have changes made to the budget, particularly given the effects of coronavirus COVID-19 on the state.

The New York Tobacconists Association (NYTA) is working to change the laws and not just revert to what’s existed for the last few years.

According to James Wiedenbeck, who is the general manager of Tinder Box Williamsville and the secretary of the NYTA, the state’s issue with the current law is that some retailers are asking for rebates.

When the law went into effect in 2013, it allowed for retailers to get rebates on the taxes it had previously paid. Some retailers are still asking the state for refunds, arguing that the industry standard rate of 38 percent is no longer accurate, instead, it could be as low as 25 percent. As such, they’ve been submitting requests for refunds on amended tax returns.

Wiedenbeck says the NYTA is asking for two changes which he says the New York Department of Taxation and Finance seemed open to in the past.

First, the law would be amended so that retailers could no longer request refunds. Second, a system would be established so the state could reset the industry standard rate either every year or every other year, something similar to how California calculates cigar taxes.

If the bill as currently written is signed into law, the new tax rates will take effect for any product purchased by a retailer starting Oct. 1, 2020.

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Charlie Minato

I am an editor and co-founder of halfwheel.com/Rueda Media, LLC. I previously co-founded and published TheCigarFeed, one of the two predecessors of halfwheel. I have written about the cigar industry for more than a decade, covering everything from product launches to regulation to M&A. In addition, I handle a lot of the behind-the-scenes stuff here at halfwheel. I enjoy playing tennis, watching boxing, falling asleep to the Le Mans 24, wearing sweatshirts year-round and eating gyros. echte liebe.