in New Orleans

A Louisiana tobacco tax crisis unfolded only days before the opening of the 2005 RTDA trade show, triggering a legal fight and big problems for a handful of exhibitors.

By Rich Perelman

Before the horror of Hurricane Katrina consumed New Orleans in late August, exhibitors at the Retail Tobacco Dealers of America (RTDA) Convention and International Trade Show faced their own unforseen problems from the State of Louisiana Department of Revenue's Office of Alcohol and Tobacco Control.

As exhibitors began their show installations on the floor of the Ernest N. Morial Convention Center, a squad of agents from the Louisiana ATC fanned out to distribute forms for a "Special Event Permit" and a questionnaire asking exhibitors to describe their businesses in detail, especially as they applied to Louisiana.

The response was not pleasant.

Beyond the unexpected irritation of having to complete more paperwork when hammering and nailing together an exhibit booth, numerous exhibitors became immediately concerned that the permit requirement and the lengthy business description questionnaire were the beginning of considerable trouble:

  • Why weren't exhibitors notified before the show that such permits would be needed? On the show floor in a strange city on a Saturday, attorneys for most companies were not close at hand.
  • Was the information being gathered by the Louisiana Alcohol and Tobacco Control group to be turned over to the state's tax division to try and tax shipments made by companies into Louisiana, or worse, try to tax all orders taken at the show on the basis that they were sales and therefore taxable in Louisiana?
  • Would information about companies who not only sell at wholesale to distributors and smokeshops, but also to retail customers across the country, be used to try and obtain state taxes from consumers, as Michigan has done with cigarette buyers in that state?
Amid this confusion and concern, several important wholesalers - who also operate as retail sales agents to a nationwide audience - refused to sign anything and were asked by the ATC agents to leave. Given the agents' size and uniforms, which included sidearms and handcuffs, the exhibitors left.

When retail attendees flowed into the show at the opening bell, empty shelves or completely empty booths stood where Santa Clara, Inc. (retail side: J-R Cigars), Mike's Cigars, and the House of Oxford (Mom's Cigars) should have been.

The RTDA, in order to stave off such problems, paid the state the fees (about $10,000) for all exhibitors for the Special Event Permits, but the agents insisted on obtaining the signed application forms from all relevant exhibitors (those who did not sell tobacco products were not affected).

Moreover, the RTDA was also caught by surprise. In a post-show letter sent to exhibitors on August 24, RTDA president Joe Rowe wrote that "In response to a member's inquiry, RTDA was informed in late July that no state permits need be sought by Exhibitors. It was only August 2nd, the evening before set-up was to begin, that the ATC claimed that any exhibitor at the show who displayed tobacco products must have a Louisiana Special Event Permit."

Exhibitors who were confronted with this problem on the show floor took action. Alex Goldman of the House of Oxford, Astoria, N.Y., made direct contact with the Convention Center management and hired legal counsel to begin the fight. Combined with efforts from the RTDA, the New Orleans Convention & Visitors Bureau, and advice from the Cigar Association of America, lobbying efforts reached the office of Louisiana Lt. Governor Mitchell Landrieu, and a suit was filed against the ATC.

Goldman's discussions with the Convention Center - a state agency like the ATC - led to intra-governmental and agency-to-agency discussions with the ATC apparently somewhat bewildered by the strong response. Said one observer, "I don't think they expected anything like this."

The ATC's stand was hard to fathom after the exhibitors who would have been most affected removed all of their samples. Goldman asked if he could exhibit showing only empty cigar boxes; the answer was no... unless he filled out a permit form. Lew Rothman of Santa Clara, Inc. wrote that "all three vendors [House of Oxford, Mike's and Santa Clara] had display booths, but no live merchandise. Therefore, there was no taxable product.

"All three vendors were aware that they should refrain from taking orders from any retailer with a presence in the State of Louisiana. Therefore, no business transaction could take place that involved anything within the jurisdiction of the State."

The RTDA finally filed a legal action for injunctive relief against the ATC and for a temporary restraining order ("TRO") to allow the show to go forward. The event continued while the case was reviewed and a decision in the RTDA's favor was granted on Wednesday, April 10 - the last day of the show.

Rowe's post-show letter noted "In issuing the TRO, the judge determined that the Louisiana Special Event Permit did not apply either to our event or our exhibitors and that the actions of the ATC should be halted."

The case is far from over, however. The RTDA's action for relief will continue, as it is still out the $10,000 it paid to cover exhibitor Special Event Permit fees and has asked for the return or destruction of all Special Event Permit applications filed by exhibitors and any notes or photographs taken by ATC agents.

With the destruction wrought by Hurricane Katrina, it's anyone's guess when the next hearing may take place. But it has put exhibitors on guard about future cities which may host the RTDA, such as Houston, Texas in 2007. And some exhibitors who also attend the massive National Association of Convenience Stores show, which had been scheduled for New Orleans later this year, were readying for a possible repeat performance. The city, however, has cancelled all scheduled conventions at least through Dec. 1st, and the NACS Show 2005 has been relocated to Las Vegas, Nov. 15-18. A test of Louisiana's tobacco tax policies will have to wait for another.

Some exhibitors are also unhappy that they were not notified when the RTDA found out about this issue on the evening of Tuesday, August 2, one to three days before many of them traveled to New Orleans for set-up later in the week. Said one, "We lost $10 - 15,000 by not being told about this in advance and having to find out about this when we got there."

Karel Espinosa demonstrates cigar rolling at the Tabacalera Tropical booth...
While the storm of protest over the Louisiana ATC's actions dominated discussions at the show, attendance was also a concern. Except for most mornings, exhibit aisles were often lightly filled, yet the end-of-show tally of the number of retail shops attending was much stronger than appeared, with 965 retail-member badges actually issued to 2,536 people.

With more than 1,230 booths occupied by exhibitors, the show may now be too big for the number of attendees. Even if everyone attended the show at the same time, spreading 2,536 people over 236,843 square feet of the Morial Convention Center's Halls E and F, mades for a sparse crowd over most of the floor.

Watchword for 2006: y'all come to Vegas, now. Please!

Rich Perelman is the editor-in-chief of CigarCyclopedia.com and author of Perelman's Pocket Cyclopedia of Cigars.

SMOKESHOP - October, 2005