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Big Tobacco okay with tax hike if it also hurts rival Dosal

TALLAHASSEE — Big Tobacco appears more ready than ever to accept a higher cigarette tax in Florida — but only in return for an extra fee on a rising competitor: Dosal Tobacco Corp.

The Opa Locka-based discount manufacturer has exploded into a statewide market force on the strength of its dirt-cheap "305's" cigarettes. Dosal has undercut competitors largely because it doesn't have to pay settlement fees from the state's tobacco lawsuit over deceptive marketing and the cost of treating sick smokers.

Dosal now has nearly 14 percent of the Florida market, up from less than 1 percent in a decade.

Reynolds American, Philip Morris USA and Lorillard Tobacco Co. still pay into the $11.3-billion 1997 tobacco settlement. They want Dosal to pay the fee as well, at a cost of up to 50 cents more per pack. Dosal says it shouldn't pay because it was dismissed from the tobacco suit.

For years, tobacco companies have swiftly and easily killed efforts to raise Florida's 33.9 cent-a-pack tax — among the lowest in the nation. But now they're on defense. The state's budget deficit is growing, prompting even some Republicans to strongly consider a $1-a-pack increase to raise about $1-billion yearly, when lawmakers meet during the regular session next spring.

And if critical mass builds behind the tax increase, a few of the big companies have signaled that they might be willing to go along — if legislators make Dosal pay the additional fee as well as the new tax everyone will have to pay, lawmakers, lobbyists and Dosal officials told the Times/Herald.

"We have a big target on our back," said Dosal's chief legal counsel, Guillermo J. Fernandez-Quincoces. "This is our last stand."

Dosal poured nearly $360,000 into the campaign coffers of Republican and Democratic legislators throughout the state this election cycle — just $30,000 shy of the total contributions made by the Big Tobacco firms.

Dosal has also deployed a team of 26 lobbyists — two more than the three big firms combined — who have begun patrolling the Capitol's halls three months before the regular lawmaking session starts.

The large cigarette makers aren't publicly discussing their strategy, however.

"We oppose any increase in the state excise tax on tobacco," said Reynolds' spokesman Frank Lester, who added that imposing a settlement fee on Dosal "would provide a level playing field for manufacturers in Florida."

Phillip Morris spokesman David Sutton said the company's main focus is to oppose a tax. Citing studies, he said smokers will flock to Alabama and Georgia if Florida "substantially" raises its tax, which could also encourage contraband smuggling.

A new settlement fee on Dosal and other discount makers could raise an additional $90-million yearly for the state, proponents say. Dosal says the fee will bring in much less money because the firm eventually would be forced out of business as its customers started buying better-known cigarettes if the price is almost the same.

Florida's cigarette excise tax ranks 46th among states. The national average tax per pack: $1.19. Average retail price per pack: about $4.25.

Cigarette lobbyists on both sides, who aren't allowed to talk to reporters because of company privacy rules, have told some lawmakers that Big Tobacco is ready to strike a deal.

"The word is going around that Dosal is a target over the tax issue," said Hialeah Republican Sen. Rudy Garcia. He said he opposes both a new cigarette tax and a fee because he fears it could put Dosal out of business. It directly employs about 150 people who live in and around his district.

The last time the fee issue arose was in 2004 at the behest of another settlement company, Liggett Group. Garcia supported the bill in the Senate, where it passed 28-8. But the bill died in the more anti-tax, anti-fee House.

Any tax or fee bill will have a harder time in the House this year as well. Gov. Charlie Crist is cool to a cigarette tax increase.

But some Republicans and Democrats say the state's overriding focus has to be on finding more money. As part of that, smokers should pay up.

"I don't really care if it's fair," said Bradenton Republican Sen. Mike Bennett. "The cost of health care isn't fair. The budget deficit isn't fair."

The Lawton Chiles Endowment Fund, an annuity established with settlement money, has lost nearly half its $2.1-billion worth in the bad economy. Lawmakers want to raid it to plug the budget hole. Advocates want to replenish it with cigarette money.

Tobacco tax money is forecast to decline 1 percent next year to $269.1-million. Tobacco settlement fees are also expected to decrease to $389.9-million, $8-million less than last year. The fee money is declining because state collections are based on the big companies' market share.

Greenacres Democratic Sen. Dave Aronberg, whose political committee received $12,500 from Dosal in the past year, said he's against higher taxes in general and specifically opposes the settlement-fee issue.

"This isn't a debate about taxes or health care, really," he said. "This is a fight about market share."

Staff writers Mary Ellen Klas, Jennifer Liberto and Steve Bousquet contributed to this report. Marc Caputo can be reached at mcaputo@MiamiHerald.com.

Big Tobacco okay with tax hike if it also hurts rival Dosal 12/15/08 [Last modified: Wednesday, December 17, 2008 8:31am]
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