Nov 17, 2009 12:47 PM by Associated Press

Tobacco execs quickly find tax loophole

Tobacco companies are avoiding hundreds of millions of dollars a year in taxes by exploiting a loophole in President Barack Obama's child health law. And they're doing it with a simple marketing twist.

Obama and Congress increased taxes on tobacco products earlier this year to pay for expanded children's health insurance. Tobacco for roll-your-own cigarettes saw an extra-big leap, from $1.10 to $24.78 per pound. Some predicted the tax would kill the roll-your-own industry.

But tobacco companies quickly adapted. The Associated Press has found that as soon as the tax was on the books, companies all but shut down their roll-your-own brands and reinvented them under a less-restricted, less-taxed category: pipe tobacco. It's still destined to be rolled and smoked, but it's taxed at barely a tenth the rate.

Retailers are steering customers to the new products, sometimes with a wink and a nod, sometimes with outright advertising.


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