WASHINGTON, DC – U.S. Senator Jack Reed (D-RI) was joined today by Senators Dick Durbin (D-IL), Richard Blumenthal (D-CT), and Sherrod Brown (D-OH) in introducing the Tobacco Tax Equity Act to close loopholes in the tax code that have been exploited by the tobacco industry to avoid regulation and paying taxes for their products. This legislation would establish tax parity across all tobacco products, including new products determined to be a tobacco product by the U.S. Food and Drug Administration (FDA), like e-cigarettes. Establishing tax parity for tobacco products will close loopholes that tobacco companies use to avoid the federal cigarette, small cigar, and roll-your-own (RYO) tobacco taxes, generating federal revenue and reducing use of tobacco products.

“We’ve seen tobacco companies take advantage of these tax loopholes by repackaging products or mislabeling roll-your-own cigarette tobacco as pipe tobacco, which come with lower taxes.  And as a result, we’re seeing more young people using these forms of tobacco and getting hooked into smoking.  All tobacco products take a toll on public health and Congress must act to ensure our tax system reflects that,” said Reed.

“As we have seen time and time again, Big Tobacco has no qualms in exploiting tax and regulatory loopholes to avoid oversight, and increase use of their dangerous products. The current loopholes in the taxes on tobacco products encourage the use of products like smokeless tobacco as a cheap source of tobacco, particularly among young people. This problem will only get worse as tobacco manufacturers develop new tobacco products, like e-cigarettes. This bill will stop tobacco manufacturers from gaming the system and protect more children and teens from this dangerous habit,” Durbin said.

“For far too long, tobacco products have exploited loopholes in the tax code to avoid paying taxes on their lethal products,” Blumenthal said. “Closing these loopholes is the latest step in an ongoing process of fighting and holding the tobacco industry accountable. The current loopholes encourage the use of new tobacco products, like e-cigarettes, that damage our nation’s health – 90 percent of adult smokers began at or before age 18 – and lead a new generation of Americans to addiction. This legislation will close a gaping tax loophole and address the critical need to prevent young people from beginning a deadly addiction.”

“Tobacco use remains the leading cause of preventable of death in the world,” Brown said. “That’s why we must do everything possible to prevent young people from starting and to help current users to quit. The Tobacco Tax Equity Act would do that by simplifying and equalizing the tax rate to not only close loopholes but also help deter the next generation of tobacco users.”

The Tobacco Tax Equity Act would create tax parity by establishing the tax rate on all tobacco products at the same per unit level as cigarettes. Under current law, small cigars and RYO tobacco products are taxed at the same level as cigarettes; however, cigars, smokeless tobacco, and pipe tobacco are taxed at a dramatically lower rate. As a result, some businesses have begun offering customers the option of purchasing under-taxed pipe tobacco or RYO relabeled as pipe tobacco and renting time on cigarette making machines in order to avoid paying the federal cigarette tax. This legislation would eliminate the current tax incentive for tobacco companies to falsely label RYO tobacco as pipe tobacco in order to sell their product at a lower cost.

Furthermore, today’s bill would close loopholes that have been exploited by the tobacco industry to avoid regulation and paying taxes for their products. A recent report by the General Accountability Office found that pipe tobacco sales increased over 1200% in September 2011 compared to January 2009, while RYO sales dropped 84%. A recent CDC study estimates that between August 2009 and August 2011, the sales of RYO as pipe tobacco resulted in over $1.3 billion in lost state and Federal revenue.

This legislation would apply to any product determined to be a tobacco product by the U.S. Food and Drug Administration (FDA). This will ensure that as tobacco companies develop new products – like e-cigarettes – they are taxed at the same level as other tobacco products. In April 2014, the FDA proposed a rule that would expand the agency’s regulatory authority to regulate e-cigarettes and other liquid nicotine delivery devices. Once this proposed rule is finalized, it will deem e-cigarettes a tobacco product, and subject to the tax parity established by this legislation.

Tobacco remains the leading cause of preventable and premature death, annually accounting for 480,000 deaths – or 1 out of every 5 deaths – in America.  Everyday 3,200 youth under the age of 18 try their first cigarette and 1 out of 13 young smokers will die from tobacco-related causes. Tobacco use costs more than $289 billion a year, including at least $133 billion in direct medical care for adults and more than $156 billion in lost productivity.

-end-