Smokeless tobacco maker sues tax board: Hefty new state levies are called punitive and unconstitutional.
Seeking to overturn sizable state-imposed tax increases on smokeless tobacco products, the nation's largest maker of smokeless tobacco filed suit in state court Monday, charging that the state Board of Equalization has overstepped its authority.
The tax increases, in some cases quadrupling the cost to consumers, "unfairly and arbitrarily" single out smokeless tobacco for punitive tax treatment, said representatives of the U.S. Smokeless Tobacco Co.
"On behalf of our loyal adult consumers, we are outraged by the increase and believe the (board's) action violates California law and is unconstitutional," U.S. Smokeless Tobacco Co. President Murray S. Kessler said in a prepared statement.
The board's tax increases are defensible, said Tim Boyer, the board's chief counsel. Boyer also said he expected the lawsuit.
"We knew that the board action might stimulate litigation," he said.
In previous years, smokeless tobacco was taxed at the same rate as other tobacco products. For the tax year ending June 30, 2001, all tobacco products were taxed at 54.89 percent of the wholesale cost. State taxes on tobacco vary widely, with California's former tax rate already one of the highest.
In June, the board voted to untie the price of smokeless tobacco and other tobacco products. The taxes, which took effect July 1, run from 131 percent of wholesale cost for higher-priced snuff to 490 percent of wholesale cost for chewing tobacco.
The price of Skoal, a higher-end brand of moist snuff sold by UST, climbed to as much as $8.50 per can, from $5 a can before the tax increase, according to a consumer who contacted the board. Chewing tobacco, now the most heavily taxed, went to $11.39 per unit from $2.39, according to another consumer.
The primary goal of the tax hike is to increase revenue for the state, said Dennis Maciel, chief of the board's excise taxes division. A reduction in use is a secondary goal, he said.
A press release from board member Johan Klehs, who is planning to run for controller, said the move is expected to produce as much as a 50 percent drop in the use of smokeless tobacco.