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Oct./Nov.
2001

An Oregon cigar shop fought to bring cigar sales back to local retailers. Exorbitant taxes had largely driven box sales to Internet and mail-order companies, depriving the state of the very taxes it thought it was collecting.
Oregon Retailer Wins
Cigar Tax Rollback

A tobacconist and a cigar-loving bookkeeper turns back a choking cigar tax, arguing that business - and tax receipts - were only sent out of state.

By Joseph Finora

While in Boston, , tourists often visit Boston Harbor, the site of that city's famous "Tea Party," where colonists threw cases of tea overboard to protest taxes imposed by England. A few years later, after the United States earned its independence, a group of Pennsylvania farmers fired at Government agents intending to collect a whiskey tax.

Today, tax protests are not as violent or as colorful. In fact, it could be argued, especially in the tobacco business, that we've become accustomed to accept rising taxes. But in the state of Oregon, a cigar-loving bookkeeper and a self-styled "tax-payer advocate" worked together to turn back a tax that was smothering tobacconists. And while doing so, made tobacco industry history.

Jan Esler-Rowe, proprietor of Portland, Oregon's Cascade Cigar and Tobacco, proved the tide can turn in the tobacconists' favor. With the help of a neighborhood "cigar-smoking, limited-government supporter," Esler-Rowe has led an effort that successfully convinced the state of Oregon to turn back a choking tobacco tax.

The original version of Oregon's Tobacco Products Act was similar to revenue acts passed in the neighboring states of California and Washington. Packed with an enormous revenue-snaring provision that reached 65 percent of the wholesale price of cigars, payable by the retailer upon delivery, it was driving the price of cigars sky high and driving tobacconists out of the state. Esler-Rowe, a former accountant who "fell in love" with the tobacco business six years ago when she had a smoke shop as a client, decided enough was enough, but needed help in her crusade.

"We'd been so beaten down people didn't believe we could do it," recalls Esler-Rowe from her once-again busy shop which lies about 40 miles from the state capital of Salem. "I wasn't sure if we had a chance but Don McIntire convinced me to go ahead."

McIntire acknowledges that he is "most notorious" for leading a fight that defeated a Proposition 13-like measure in Oregon. He believes government already has too much influence in our daily lives. Plus, he smokes from one to three cigars a day and couldn't believe the prices he was paying for them. He then convinced Esler-Rowe she should lead the fight. Devising a Plan of Attack "Sales were dying," recalls Esler-Rowe. Boxes of cigars were easily running well over $100 with the tax. But people were still smoking cigars in Oregon. They just weren't buying from Oregon retailers - they were using mail-order and Internet companies.

"Newspapers were making it look like expensive cigars were just for rich fat cats," says Esler-Rowe. "A person may be rich but that doesn't mean they're stupid," adds McIntire.

This analysis proved to be correct. Oregon cigar smokers were avoiding the steep taxes by purchasing from sources outside the state. Besides hurting tobacconists, this actually hurt the state because it couldn't collect reasonable taxes it had levied on cigar sales. The problem grew. Oregon, a state without a general retail sales tax, began losing revenue from the employment tax it would have otherwise been getting from people working in the tobacco business there. Cascade Cigars itself has 12 employees. But no one seemed to care.

"Politics loves fees and tobacco has been an easy target," says Esler-Rowe, who adds that Oregon-based religious groups were leading the fight to raise that state's tobacco tax. Esler-Rowe and McIntire were then able to see through the smoke and knew what their message would be. Sidestepping sentimental anti-smoking concerns they transformed the argument into what it rightly is - a small business issue.

The fight actually began in 1993 when the Oregon State Legislature increased the tax on cigars to 30 percent. Esler-Rowe responded with a petition-, fax- and letter-campaign of over 1,000 pieces but failed. A see-saw battle ensued until 1999, when she went before the state's Revenue Committee to plead her case as a small-business owner. "My knees were knocking," recalls Esler-Rowe, who had never before been involved in politics. But her testimony was countered by anti-tobacco groups and local newspapers, which supported the fee-backed legislation. In the 11th hour it was decided that the fees would remain in force.

What followed was a massive letter- and fax-campaign aimed at Salem lawmakers. Local religious groups fought them every step of the way. "They watched everything we did," recalls Esler-Rowe. Fighting alone was failing. Meanwhile, sales of single sticks, pipes, supplies and her cigar-bar/restaurant kept her business afloat. Then, on the advice of McIntire, they enlisted the help of Republican State Representative Bill Witt. The idea at the time was to cap the tax.

Oregon, however, is a citizen-ballot-initiative state. The state's Attorney General must certify signatures and it was difficult to go against the will of the voters. The initiative was not changing. Esler-Rowe and McIntire began sending information packets to other tobacconists in the state to get them to join the fight. Not one responded. They then began publishing a newsletter to customers informing them about what was happening in their capital, asking them to complain to their representatives. According to Esler-Rowe, many did and they began fighting back harder than before. "We committed ourselves to 24-hour days, seven days a week to win this thing," she notes. "We had to get the message that people were still smoking in Oregon. They weren't buying in Oregon."

At the time, a 25-stick box of Arturo Fuente Don Carlos was retailing in Oregon for about $110. A box of Cohiba Churchills retailed for about $420 if bought in the state. Over the Internet, these cigars could be bought for about one-third the price. Oregon was on its way to destroying its retail tobacco business much like California had done. As the Smoke Settled "They were raising revenue to the point where they were actually diminishing revenue," says McIntire. "Raising the cigar tax for the 'public good' was senseless. Their anti-smoking efforts had no effect on smoking in the state and were causing the state to lose money."

The smokers' letter-writing campaign began to take effect. They basically told lawmakers they were tired of paying such high prices for tobacco and would not support them in their upcoming elections. Esler-Rowe kept a petition on her store counter for patrons to sign expressing their displeasure with what was happening in Salem. Then, with the help of Rep. Witt they were able to change the tax from the 65 percent level to a maximum of 50 cents per stick through bills ORS 323.500 and 323.505.

The 65 percent of the wholesale sales price of cigars still exists but it is not to exceed 50 cents per cigar; or 65 percent of the wholesale sales price of all tobacco products that are not cigars - largely cigarettes. It goes into effect Jan 1, 2002 on wholesale cigars purchases made after that date. The bill has passed in both Houses of the Oregon State Assembly. It's not clear whether the governor will sign it into law or simply allow it to take effect on its own.

"I hope this becomes a precedent for other states," said Norm Sharp of the Cigar Association of America Inc., an industry group based in Washington D.C. "The tobacconists have reason on their side. They were not getting any revenue by crushing retailers. This will benefit everyone - the state and the tobacco companies. It should be the position of smoke shops."

"Our case will grow stronger over time," says McIntire. "Thanks to the numbers, we can illustrate better revenue figures for the government through a sensible tax plan then before. It's going to be tough to argue against it."

Business is getting back to normal at Cascade Cigars. While Esler-Rowe admittedly "counts the days to Jan. 1, 2002," sales are keeping her busy and the company launched a Web site. She's become a good communicator thanks to this ordeal and now uses her lists to contact customers on their birthdays or to notify them of specials. The 10,000-sq.-ft. store is open seven days a week and features a 1200-sq.-ft., walk-in humidor and lounge. Web site sales are equal to in-store sales and it's an especially strong way to sell boxes of cigars.

"If it wasn't for the Web site we wouldn't be here," she confides.

Thanks to the efforts of Esler-Rowe, McIntire and Witt, plus several thousand angry cigar smokers, Oregon became the first state in this nation's history to reduce a tobacco tax. Maybe it's a sign of things to come. Now that the smoke has cleared, what's Esler-Rowe's reaction?

"We finally succeeded. You have no idea how good it feels."

Maybe one day tobacconists, tax-payer advocates and others interested in less government and more freedom, or someone just seeking a good cigar at a reasonable price, will visit Esler-Rowe's store. For a glimpse of this historic shop check out: www.cascadecigars.com.


SMOKESHOP - October/November 2000