A law passed earlier this year changing the definition of a cigarette to include vaping products, which has lumped in certain cigars for tax purposes, has caught the ire of two tobacco product manufacturers and a New York trade association.
Swisher International Inc., Cheyenne International Inc. and the Cigar Association of America last week sued Nebraska’s attorney general and tax commissioner over the change that went into effect Sept. 1.
In a lawsuit filed in Lancaster County District Court, their attorney, Patrick Brookhouser Jr., called the move "unprecedented."
"Our office will defend the law," said a spokeswoman with Attorney General Doug Peterson's office.
On the other side, Brookhouser said there has been a long-standing distinction between cigars and cigarettes based on various factors, including that cigars are wrapped in tobacco and cigarettes are wrapped in paper.
And Nebraska's change, he said, departs from the way the same statutory language has been interpreted for two decades.
The language and prior interpretation had come from a settlement reached between 46 states, including Nebraska, and the five largest cigarette manufacturers in America over advertising, marketing and promotion of cigarettes.
Manufacturers of tobacco products who were selling cigarettes in Nebraska were required to make annual payments (based on the federal excise taxes it pays) to the states for health care costs associated with cigarette smoking or to register as a nonparticipating manufacturer and put money into an escrow account based on cigarettes sold in Nebraska.
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Things continued that way until the passage of LB397 amended the term "cigarette" and the Nebraska Department of Revenue issued a notice on its website in August.
As a result, tobacco manufacturers said, now certain little cigars, filtered, nonfiltered and flavored, were reclassified as cigarettes as of Sept. 1.
If the cigars didn't meet certain requirements, include being listed on a state directory, they could be confiscated during a retail inspection, the notice from state officials said.
"No state has ever applied the term 'cigarette' as used in that agreement to cover cigars in the way that (Nebraska has) done," Brookhouser said.
He said the problem is that cigarette sellers who already are part of the 1998 settlement can sell little cigars without paying Nebraska anything, because the federal excise tax it pays on cigarette sales excludes cigar sales by definition.
However, Brookhouser said, if a company such as Swisher or Cheyenne also makes cigars and wasn't part of the settlement, it has to pay $7.16 into an escrow account for each carton of cigars sold in Nebraska.
In the lawsuit, he asked a Lincoln judge to block the state from carrying out the change, calling it "futile" for companies to attempt any further administrative relief.
"Defendants' position is clear and unchanging," Brookhouser said.