New tax on tobacco a death knell?

Erin Smith Staff writer

December 21, 2013

ELIZABETHTOWN — A new federal tax on tobacco is slated to take effect soon and is anticipated to have a negative impact on the entire tobacco industry.

The tax, which is contained in the 2014 proposed federal budget and gaining rapid support, is to be used to pay for an early learning initiative. The proposal would increase the federal tax on cigarettes by 0.94 cents per pack to $1.95 per pack.

“Tobacco is being bombarded every way you turn with adverse bureaucracy and taxation is strangling the industry,” said Ron Taylor, who owns Taylor Manufacturing in Elizabethtown.

His business manufactures bulk tobacco barns and other tobacco-related equipment. Taylor said on Thursday that he needs to hire about 30 additional employees to build bulk tobacco barns for which his company currently has orders.

“We went for nine years without building bulk tobacco barns,” said Taylor.

He said the only way his company survived was because of its diversification. Taylor said that with the decrease in demand for tobacco implements, his company downsized and reinvented itself.

“We’ve diversified into other things and other industries, but our biggest sales items have been tobacco equipment,” said Taylor. “Without tobacco, we don’t have near the volume of business.”

He said that, in addition to the new federal tax, the last payment of the tobacco buyout program is due soon and Taylor anticipates that to have dire consequences for North Carolina and Bladen County, as well.

“No one will tell you tobacco products are good for you … tobacco is the whipping boy for so many folks,” said Taylor.

He added that demand for tobacco-related implements is on the upswing again and, as a result, orders for bulk tobacco barns are up.

Taylor added that the new taxes on tobacco are a death knell for the industry.

“It’s just another nail in the coffin for our industry,” said Taylor sadly. “The end result is decreased demand …”

Tobacco grower Steven Smith of Bladenboro said that he is a third-generation tobacco grower and he, as well as his father, have seen a lot of changes in the tobacco industry. Smith said that in his father’s time tobacco planting and harvesting has gone from horses and mules to using tobacco stalks to using automated equipment. Smith noted that there is very little work that is done by hand any more in the tobacco field.

He added that a new tax is just one more adversity tobacco farmers are facing.

Smith said he plans to grow about 140 acres in the upcoming year.

“It’s a commodity that is taxed to death anyway,” said Smith of the proposal. “It becomes a burden throughout the industry.”

Smith said that its more about economics than a health-care issue.

“They tend to do it (taxation) at an expense to business. Everything gets passed along ultimately to the people in the industry,” said Smith.

He added when there is a decreased demand or no demand for the product, it impacts the growers. Smith said that growers have to be careful about the amount of debt they carry when times are uncertain.

Smith said the way contracts are currently structured today is vastly different than the former Clovis system that was in use for years throughout the industry.

“If something changes in the industry, they (the company with which you are contracted) can call you and say they don’t need you,” said Smith.

He added they could potentially call you and modify the contract amount by a percentage.

“It is all controlled by the industry and it is much more of business than it used to be,” said Smith.

He added there is one bright spot and that is that tobacco inventory is a extreme low point right now.

“Even given the tax situation because the inventory is so low, for the next year or two we should be in good shape. The long-term effects won’t be seen immediately,” said Smith.

He estimated the impact will hit local producers like himself in about seven to ten years thanks to the inventory situation.

“About three years ago things got tough. …we were one of the ones who stuck it out,” said Smith.

He added there are only about ten tobacco growers left in Bladen County. Other growers have dropped tobacco in favor of other crops.

Lee Kent, owner of Vapor Shack in Elizabethtown, said that an increase in the sales tax on cigarettes wil most likely drive some traffic to electronic cigarettes, but cost alone won’t necessarily cause someone to switch.

Kent said the reason that the electronic cigarette is so successful is that it meets all of the needs of a smoker. It gives them the oral sensation, a vapor semblance of smoke, and the visual sensation that a smoker wants or needs.

“That (the proposed tax increase) should drive some traffic to electronic cigarettes,” said Kent.