Much earlier than expected, the U.S. Food & Drug Administration (FDA) has begin to impose user fees from those importing cigars into the U.S.
User fees are the only monetary payments FDA collects and are designed to fund FDA’s Center for Tobacco Products (CTP). They help to pay for the administrative costs associated with hiring staff to evaluate substantial equivalence claims, enforce FDA rules and carry out other regulatory activities.
The fees are to be paid by six different types of tobacco products: cigarettes, roll-your-own tobacco, snuff, chewing tobacco, cigars and pipe tobacco. E-cigarettes and vapor products are notably not subject to the user fees.
CTP will collect $635 million in user fees for 2017 based on the percentage of federal excise tax each category pays in comparison to the other five categories. Cigars will pay 9.69 percent of that amount, $61.5 million, as a category, but that includes products such as little cigars and flavored cigars. Companies pay user fees based on the proportion of federal excise taxes—SCHIP for cigars–they pay compared to the category as a whole. These payments are due quarterly.
Earlier this year, halfwheel estimated these fees to be no higher than 4.32 cents per cigar for 2017, assuming the full 40.26 cents of SCHIP is paid. Cigar companies have told halfwheel it is slightly less, as low as 4.24 cents per cigar according to one company.
The big change is that FDA has begun invoicing importers, something that was unexpected. Multiple cigar publications, including halfwheel, and industry groups has indicated that FDA would not begin to collect user fees until next October.
Turns out, FDA begun this October.
Until September, FDA had not specifically said when they intended on collecting user fees for cigars. As of May, the most detailed explanation about user fees was the following:
This rule is effective August 8, 2016. Domestic manufacturers and importers of cigars and pipe tobacco must begin submitting data required by § 1150.5 (21 CFR 1150.5) to FDA no later than the 20th day of August, 2016.
Because FDA can perform class allocations only on a full fiscal year basis, domestic manufacturers and importers of cigars and pipe tobacco will become subject to user fee assessments on October 1 of the first full fiscal year following the effective date of this rule.
The latter part of that statement was incorrectly interpreted to mean 2017.
User fees are paid quarterly and only paid by those with a license from the Alcohol and Tobacco Tax and Trade Bureau (TTB). Many cigar companies don’t import themselves, rather, they use third-party importers. Like SCHIP, the importers will be subject to the fees which will then be passed onto the manufacturers.
For more information about FDA’s regulation of premium cigars, please visit halfwheel.com/fda.