Maryland shipment ban has cigar enthusiasts all fired up

May 13, 2011|By Jay Hancock

Sometimes Bruce Parrish likes to smoke a Fuente Fuente OpusX when he mows his Westminster lawn. He can't buy the $20 Dominicans, described by as "perhaps the rarest and highest rated brand in the world," at his local tobacconist, he says.

So he takes advantage of the modern economy and orders them online from Pennsylvania, whence they arrive by mail. Or at least they used to.

Starting May 1 it became illegal to ship cigars directly to Maryland consumers, according to an interpretation of a 2010 law by Comptroller Peter Franchot. As a result, smokers have been bombarding Franchot with combustible emails.

"If they're going to apply that to a tobacco product, the next thing is going to be you can't buy clothing online — or you can't buy anything online," says Parrish, a 50-year-old software engineer. "Just another example of the nanny liberals taking away our rights."

It's a complex issue touching on tax collection, tax fairness and interstate commerce. Even cigar dealers seem to have mixed feelings, with some Maryland store owners reportedly favoring the restrictions on out-of-state competitors with mail-order businesses.

But Maryland has outlawed mailed cigars at precisely the same time that it's starting to allow consumer wine shipments. One sin is restricted, the other abetted. If that doesn't tell you that nonsense still rules in the regulation and taxation of Internet retailing, you've been indulging in too many Cusanos and cabernets.

Curiously for a place with tight cigarette regulation, Maryland was until May 1 the rare state that didn't make sellers of cigars and pipe and chewing tobacco be licensed. Fearing that smugglers and rogue dealers were cheating on taxes, Franchot asked the 2010 legislature to require licenses for purveyors of these "other tobacco products" and to make wholesalers responsible for paying the tax.

The law also outlawed direct shipments to consumers, even for law-abiding cigar smokers who had set up accounts with Franchot's office and paid the tax themselves, according to the comptroller.

"Cigar enthusiasts across Maryland have flooded our emails and phone lines" with complaints, says Brian Berman, membership director for Cigar Rights of America, a nonprofit advocacy group based in Virginia.

Philadelphia-based Holt's Cigar Co., where Parrish gets some of his supply, sent customers an email Tuesday describing the new Maryland law as "unconstitutional, anti-freedom, anti-choice and wholly un-American" and urged them to contact Franchot.

Most states, including Maryland, ban Internet cigarette sales. But few have tried to outlaw or restrict consumer cigar shipments, says Chris McCalla, legislative director for the International Premium Cigar & Pipe Retailers Association, based in Georgia.

Two years ago, the U.S. Supreme Court struck down a Maine law that required delivery drivers to confirm that buyers of cigarettes or cigars were at least 18 years old. The court ruled that federal law pre-empted the regulation Maine was trying to impose, notes Kathleen Dachille, director of the Center for Tobacco Regulation at the University of Maryland School of Law.

Some Maryland retailers told McCalla they favor the mail-order prohibition because it'll keep out-of-state cigar bazaars from undercutting them by not charging Maryland's excise tax, which can run as high as 15 percent.

Those dealers "are circumventing the tax system," he said. "Therefore the price is going to be cheaper online."

Under previous law, Maryland buyers of Internet cigars — not out-of-state stores — were responsible for paying taxes. But how many of them do you believe filled out Maryland's "Other Tobacco Products Tax Return" form? Representatives from Philadelphia-based Holt's did not return my calls.

Unless the underground cigar economy is a lot bigger than anybody imagines, there doesn't seem to be a huge amount of tax money at stake. In fiscal 2010, Maryland collected $11 million in excise tax on cigars and pipe and chewing tobacco, and roughly $4 million in sales tax.

Franchot's office was sounding contrite as the emails piled up.

Banning shipments of premium cigars "was not really the main focus" of the bill, Franchot spokesman Joseph Shapiro said Wednesday. Rather, he said, it was aimed at contraband cheap cigars and "these cigar aficionados kind of got caught up in this. … We weren't thinking of the cigar-of-the-month person."

Franchot is working with legislators to change the law so premium cigars could be ordered on the Web — so long as the tax collection is assured, Shapiro said Friday. The wine shipment law, which becomes effective July 1 and which Franchot supported, requires out-of-state dealers to be licensed and to collect Maryland taxes.

Such a setup for cigars and pipe tobacco may satisfy smokers such as Parrish, who says he's happy to pay the tax and has "self-reported" cigar taxes to Maryland.

But altering the law will take at least until the special legislative session in the fall. And even then it won't stop enterprising aficionados from bypassing the tax the old-fashioned way.

Unlike Maryland, the District of Columbia doesn't levy an excise tax on premium cigars, McCalla points out. Pennsylvania doesn't put an excise tax on cigars or pipe tobacco. If you want to be your own deliveryman, they aren't that far away.

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