TAX NEWS - JUNE 2010

U.S. Tax: Tax Loophole Allows Tobacco to Avoid Paying $250M

by Lea Yu, 02 June 2010 -- Tobacco companies avoided $250 million in taxes last year, exploiting a loophole in President Obama's children's health insurance program by relabeling their rolling tobacco products as pipe tobacco.

As the Associated Press reports, the loophole stems from the fact that the federal government has yet to codify the difference between pipe tobacco and roll-your-own tobacco. The two products usually have  different consistencies, but under current U.S. regulations the labels are practically interchangeable.  Instead of paying a tax of $24.78 per pound for rolling tobacco, tobacco companies paid $2.83 per pound.

The State Children's Health Insurance Program (SCHIP), which Obama signed early last year, is expected to spend $32.8 billion in order to insure up to 13 million children from low-income families through 2013. The initiative is also financed by a 62-cent federal excise tax increase on cigarettes.