FDA and Cigars
In late April, the U.S. Food and Drug Administration published a notice in the Federal Register that the agency intends to adopt a rule that would subject cigars to the regulations under the Family Smoking Prevention and Tobacco Control Act passed by Congress, which took effect in June of 2009. This law already allows the FDA to regulate cigarettes, roll-your-own and smokeless tobacco products under the FDA regulatory law.
The actual notice published by the FDA reads as follows:
The Family Smoking Prevention and Tobacco Control Act provides FDA authority to regulate cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. Section 901 of the Federal Food, Drug, and Cosmetic Act, as amended by the Tobacco Control Act, permits FDA to issue regulations deeming other tobacco products to be subject to the Tobacco Control Act. This proposed rule would deem cigars to be subject to the Tobacco Control Act and include provisions to address public health concerns raised by cigars.
This notice issued by the FDA means that sometime in June of 2010 the agency will issue a proposed rule regarding the regulation of cigars and allow the public to submit comments to the rule. The extent of the regulations that the FDA intends to apply to cigars will not be known until the proposed rule is issued. One the proposed rule is issued, the public is usually provided a sixty day period to submit comments supporting or opposing the rule.
PACT Act Impact
With the Prevent All Cigarette Trafficking Act (PACT Act) going into effect on July 1, 2010, the sale of cigarettes and smokeless tobacco products over the Internet will be severely curtailed. The PACT Act represents a major victory for the industry and the states because the law includes the following provisions:
Ø Retailers which sell cigarettes and smokeless tobacco products over the Internet must collect state cigarette taxes, smokeless tobacco taxes, and sales taxes and pay those taxes to the states.
Ø Internet retailers must verify the age of the individual purchasing cigarettes and smokeless tobacco products to prevent underage youth from buying these products.
Ø The U.S. Postal Service is prohibited from delivering cigarettes and smokeless tobacco products through the U.S. Mail to consumers.
These provisions close a number of loopholes in current federal law regulating Internet tobacco sales. With Internet sellers no longer able to sell cartons of cigarettes or smokeless tobacco products at a large price advantage over legitimate brick and mortar retailers, consumers will return to buying their tobacco products from local stores. Moreover, the PACT Act virtually guarantees this return to buying from local retailers because the U.S. Postal Service will be prohibited from delivering tobacco products. This higher level of cigarette and smokeless tobacco sales by retailers should begin shortly after July 1st and pick up as each month passes.
Another benefit of the PACT Act is that every state will be the beneficiary of a tax windfall either from state excise taxes and sales taxes being remitted by Internet sellers or from consumers changing their buying habits and purchasing their tobacco products at local retail stores. According to U.S. Senator Herb Kohl (D-WI), the chief sponsor of the PACT Act, Internet tobacco sales alone cost state governments $1.4 billion annually in tobacco excise taxes and sales taxes.
Seizing on this newly enacted law, NATO has begun to educate state lawmakers about the tax windfall in those states where legislation is pending to increase cigarette and OTP taxes. With the windfall a virtual certainty for any given state, lawmakers may be able to avoid passing further cigarette and OTP tax increases or reduce the size of the increase to resolve budget deficits. This strategy has already been undertaken by NATO in Connecticut, Illinois, Kansas, Minnesota, New Hampshire and New York.
(Thomas Briant, the Executive Director of NATO, can be contacted at 1-866-869-8888 or via e-mail at email@example.com).