The Montgomery County levy on all tobacco products except cigarettes took effect yesterday amid widespread confusion among vendors over how to collect the tax and protect themselves from suffering significant financial losses.
Hundreds of Montgomery retailers began reprogramming cash registers to reflect higher prices on cigars, chewing tobacco, snuff, and loose-leaf tobacco as a result of the tax passed last year by the Montgomery County Council. The tax, endorsed by public health advocates, is designed to raise money for anti-smoking measures.
Maryland law prohibits counties from imposing sales taxes, so Montgomery has found an unorthodox way to tax tobacco. In most cases, wholesale distributors pay tax based on their sales to retailers. But Montgomery's tobacco tax assesses retailers based on what they purchase from wholesalers, whether or not the retailers actually sell the product. Either way, the additional costs are commonly passed on to consumers through higher prices, which public health advocates say help discourage tobacco use among youth.
Further complicating the task for retailers is that Montgomery's tax will expire next July, when it is replaced by a traditional sales tax imposed by the state.
"Confusion is one way to describe it, but chaos is a better way," said Sheldon Sadugor, owner of Century Distributors in Rockville. "Montgomery should have dropped it when the state passed its tax. But you have people in the county who don't care what the cost is as long as it hits tobacco."
Montgomery tobacco vendors have argued that the tax is not worth the time and money it will cost to administer. Nine tobacco vendors filed suit yesterday to stop the tax, saying it violates state law.
The suit argues that Montgomery has no authority to levy what amounts to a sales tax, though county officials say they have the right because it applies to purchases rather than sales. Montgomery County Circuit Court Judge Durke G. Thompson ruled that the county's roughly 800 licensed tobacco vendors would not have to pay the tax before an Aug. 10 hearing. The order has little practical effect, however, because retailers are not required to submit their first tax payment until Aug. 25. Should they lose the suit, retailers would be required to pay taxes on inventory purchased as of yesterday.
"Any time there's an effort to slow down tobacco use, tobacco companies get concerned," said County Executive Douglas M. Duncan (D). "Ideally, the state law would have made their cigar and smokeless tobacco tax apply now. But we're going to execute our law and collect the tax."
The tax is one of two anti-tobacco measures the council has passed since the November elections. In March, the council voted to ban smoking in all Montgomery restaurants and bars beginning Jan. 1, 2002--legislation that also is being challenged in court with the support of tobacco interests.
The new tax requires Montgomery retailers to pay an extra 3 or 6 cents per cigar, depending on its size, and 36 cents per 1.5 ounces of snuff, pipe tobacco or loose-leaf cigarette tobacco. Chewing tobacco will be taxed at 36 cents per 3 ounces. County officials estimate the tax will raise $150,000 to $200,000, after accounting for administrative costs.
Last month, the county sent out 800 letters advising tobacco vendors to apply for a tax account number. As of yesterday, 60 vendors had done so. Some vendors told the county they would stop selling those tobacco products.
Courtney Smith, manager of two Signature Cigars stores in Montgomery, said she did not receive notice about when the tax started or how to collect it.
"I have had no way to prepare," Smith said. "We'll have to wait and see how things are going to play out before we make any decisions."
Bart Sims, who owns two J.B. Sims Fine Tobaccos shops in Montgomery, called the tax "goofy" because it applies to his purchases. He is reprogramming his computerized cash registers to reflect a 6-cent across-the-board price increase.
"I pay tax on what I buy whether it is sold or not," Sims said. "It's sticking it to the vendors."