Virginia - tax on smokeless tobacco Altria clashes with Swedish Match..

February 20, 2010 -

In general, if the excise tax is based on the weight of the tobacco product then the price will favor the more expensive brand. If the excise tax is based on the cost of the product then the price will favor the cheaper brand.

In Virginia, there is a muted clash over the excise tax on smokeless tobacco, between two tobacco giants both located in the Richmond Area on either side of the James River -- Henrico County-based Altria Group and Swedish Match's Chesterfield County-based North American operations -- could have echoes across the country.

The question: Should the state levy the tax by the units sold, as Altria, with its relatively more expensive premium brands of snuff, wants? Or should it levy a tax that's a percentage of the price, the position urged by Swedish Match, now that it has carved out a healthy chunk of the market with its less costly brands.

The proposed change in the tax would mean lower-priced products, such as Swedish Match's Timberwolf, likely will see higher taxes, while premium brands such as Altria's Copenhagen and Skoal will pay less.

Virginia now taxes smokeless tobacco at 10 percent of the wholesale price. Legislation in the state Senate and House would change the tax to 18 cents an ounce for moist snuff. Both bills originally left the 10 percent tax on other tobacco, including the old fashioned "loose-leaf" or chewing tobacco, like Swedish Match's flagship Red Man brand.

Makers of higher-priced snuff said shifting the tax to wholesale prices would have raised the levy on their products. However, lower-priced snuff makers said it would amount to a tax cut for their product and would put all makers on equal footing.

With smoking bans becoming more prevalent, tobacco companies are placing a greater emphasis on smokeless tobacco products like moist snuff, something lawmakers on both sides of the issue alluded to describing it as an industry battle.

Moist snuff, commonly called dipping tobacco, is pinched out of the tin and placed between the lip and gums. The bill would also have applied to snus — tiny pouches of smokeless tobacco that give the hit of nicotine without the spitting. Major tobacco companies in recent years have come out with brands such as Camel Snus.

Reference: Virginia tobacco giants clash over excise tax by David Ress, Richmond Times-Dispatch, 2/19/2010.