The Cigar Association of America outlines a new Chicago ordinance and what it means for retailers in the city.
Chicagoans who use other tobacco products (OTP) including cigars, smokeless and pipe tobacco are in for more taxes beginning in July due to a new ordinance. And the age to purchase tobacco products has also been raised from 18 to 21.
The City of Chicago City Council passed Mayor Rahm Emmanuel’s OTP tax proposal on March 16.
The proposal had been under consideration since earlier this year and a number of organizations, including the Cigar Association of America (CAA), the International Premium Cigar & Pipe Retailers (IPCPR ), the National Association of Tobacco Outlets (NATO), the Illinois Retail Merchants Association, R.J Reynolds, Altria as well as wholesalers and retailers in Chicago, have been working to defeat the massive and regressive tax increases since mid February.
While they failed to defeat the proposal, CAA reported that they managed to “revise down” some of the tax increases.
As outlined by CAA, the new tax rates are as follows:
- For Large Cigars (weighing more than four pounds/1,000)
20 cents per cigar down from 90 cents per cigar
- For Little Cigars (weighing less than four pounds/1,000)
20 cents per cigar up from 15 cents per cigar - For Pipe Tobacco —defined as separate from roll your own (RYO)
60 cents per ounce down from $6.60 per ounce
- For Smoking Tobacco
$1.80 per ounce down from $6.60 per ounce
- For Smokeless Tobacco
$1.80 per ounce as originally proposed.
The ordinance also increased the age to purchase tobacco products from 18 to 21 years of age. However, the ordinance amended out the section of statute that criminalized the possession of tobacco products by those under the age of 21. It is unlawful for those under 21 to use improper ID to purchase tobacco products and it is unlawful for a retailer to sell tobacco products to those under 21 but the possession of tobacco products by those under 21 is no longer an unlawful activity subject to monetary fines, CAA explained.
The ordinance also contains price floors (minimum pricing) for all tobacco products.
For Little Cigars and Cigarettes: $11.50 per package. (it is assumed but not defined that this applies to packs of 20)
For Large Cigars: $1.36 per cigar down from $1.74
For Pipe Tobacco: $4.56 per ounce down from $17.70 per ounce
For Smoking Tobacco: $11.29 per ounce down from $17.70 per ounce
For Smokeless Tobacco: $4.94 per ounce up from $4.00 per ounce
Under the ordinance, the Commissioner of Health with the approval of the Comptroller can now amend by rule the price floor applicable to a category of tobacco product in an amount proportional to the change, if any, in the Chicago-Gary-Kenosha area consumer price index.
Coupons are prohibited as well as multi-pack discounts. There is also a minimum pack size requirement for little cigars at 10 per pack. The original ordinance called for minimum pack sizes of 20.
In response to industry claims that the City of Chicago is preempted by state law from adopting an OTP tax, Mayor Emmanuel amended the ordinance to stay implementation of the price floors, coupon prohibition and minimum pack sizes pending invalidation of the OTP taxes by a court or legislative action.
The tax increases as well as the age to purchase increase take effect July 1, 2016. The tax on OTP does not apply to OTP that is in the possession of a retailer as of July 1, 2016.