The Texas Senate will vote next week on a bill that would cripple small tobacco companies and violate our state constitution. Texans can expect to see no benefit at all if the bill passes.
In 1998, Texas won a lawsuit against big tobacco companies that manipulated nicotine content, lied about their knowledge of tobacco's effects, and marketed to children. Texas instituted penalty fees on those companies' cigarettes to compensate both the health care costs incurred by the state and the companies' lies.
Since August, three of the biggest tobacco companies – Philip Morris USA, R.J. Reynolds Tobacco Company and Lorillard Tobacco Company – have been pushing the Legislature to pass HB 3536, which would force small tobacco companies to pay the same penalty fees. They've hired a large and well-connected lobbying team to make their case at the Capitol, and that team has been successful since Day One. The bill had 14 cosponsors in the House, including three Democrats (Sylvester Turner, Donna Howard and Eddie Lucio III). The bill passed the House easily on May 7th.
Remember that the small tobacco companies already pay the state sales tax. The big tobacco companies are trying to get them to pay their penalty fees for lying to the state and deceiving consumers. As former Texas Supreme Court Justice Craig Enoch noted in a memorandum on the bill bill, such a move would violate the Equal and Uniform Clause of the Texas Constitution that requires reasons other than nature of the business to impose different taxes on the same kind of business. The Texas Tobacco Settlement clearly meets the “other” reason requirement. Enoch testified in August: “Because a statute that would only tax tobacco manufacturers that were not parties to the Texas Tobacco Settlement (while exempting those that were part of the settlement) has no reasonable basis in the nature of the business and does not apply equally across all members of the class of tobacco manufacturers, it must be rejected as unconstitutional.”
Read more below the jump.These fees would cripple Texas's small tobacco companies, which is the clear goal of The Big Three's efforts. Forcing small tobacco companies to pay the fines will add up to millions of dollars for The Big Three's bottom lines. But it could also put many tobacco stores and convenience stores out of business or significantly reduce their earnings.
Jeff Cotton, owner of three small tobacco stores in East Texas, said he is concerned. Customers mostly buy cigarette cartons at Cotton's stores to save money on individual packs. Most buy the small tobacco companies' cartons because they are more affordable. “This bill could possibly put me out of business,” he said. “And I don't think it's fair.”
The big tobacco companies do fine in Texas despite their fees, selling millions of dollars worth of cigarettes all across Texas each year. Changing the law in their favor would benefit only their bottom lines, not Texans, as proponents have argued. Minnesota's state government recently equalized the penalty fees on tobacco companies, and received far less revenue than they were promised. The small companies can't handle the fees designed for the big companies and as a result, either close their doors or significantly reduce their sales. Notably, the Legislature equalized chewing tobacco prices between the sued and not-sued companies in 2009 and saw massive loss in state revenue from the product. Incredibly ironically, this bill seeks to restore the previous tax structure so that state revenue can go up. This literally acknowledges that equalizing the prices will be a loss for the state while attempting to equalize the cigarette prices.
This is a bill written by The Big Three for The Big Three. It means higher cigarette prices for Texans, harm to small businesses, and less revenue for the state. After passing out of the Senate Finance Committee on Friday night, the bill now moves to a full Senate vote.
Bad news for the Texas constitution.