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November 3, 2006

A Newsletter of the National Association of Tobacco Outlets, Inc.

August 2007                                                                                              Volume 7, No. 3

NATO Leading the Battle Against Federal Tax Increases

Since May, NATO and its members have worked tirelessly to oppose legislation in Congress that would enact oppressive tax increases on cigarettes, cigars, little cigars, pipe tobacco, smokeless tobacco and roll-your-own tobacco to expand the State Children’s Health Insurance Program (SCHIP) which provides health coverage for children in low income working families. The legislation, S. 1893 in the Senate and H.R. 3162 in the House, was passed before Congress adjourned on August 6th for a month long recess.

With the Senate and House passing different versions of the bill, a conference committee made up of Senators and Representatives will meet in September to negotiate the differences. Then, the full Senate and House must vote on the final version of the bill and send it to President Bush. According to statements issued by the Office of Management and Budget, the President will veto the SCHIP legislation because the expansion of eligibility requirements would be the first step toward federalizing health care and because the tobacco tax increases are highly regressive.

The House and Senate bills would enact different tax increases on cigarettes, cigars, little cigars, pipe tobacco, smokeless tobacco and roll-your-own tobacco. These proposed tax increases would represent the single largest percentage tax increase on one product in the history of the United States. The proposed tax rates are as follows :

Proposed Tax Rates

Besides these higher tax rates, the Senate version of the bill has a floor stocks tax on cigarettes and all other tobacco products which would require wholesalers and retailers to pay the higher tax rate on all cigarettes and OTP products in stock on January 1, 2008. In contrast, the House bill has a floor stocks tax provision on cigarettes only which would require.

Dear NATO Members:

As I watched the U.S. House of Representatives debate the SCHIP bill on C-Span, I was struck by the fact that the majority of arguments were being made about the significant expansion of health insurance coverage for “children” up to the age of 25 and how far to extend subsidized health care coverage including whether to include individuals who are not U.S. citizens. Only a few representatives mentioned the punitive proposed tax increases on tobacco as a reason not to vote for the legislation.

It is clear that the Democrats in control of Congress, plus a few Republicans, want to usher in a new era of federalized health care for the masses and this goal begins with broadening the scope of SCHIP. Logic would dictate that Congress should rely on a stable funding source to spend $35 billion more on SCHIP under the Senate bill and almost $50 billion more under the House version rather than use a declining revenue source such as cigarette and tobacco taxes to pay for this social program.

Former Supreme Court Chief Justice John Marshall once wrote that “The power to tax is the power to destroy”. This quote is certainly as true today as when Justice Marshall first penned those words. Even though it may be unintentional, the oppressive tax increases being sought by Congress on all tobacco products will destroy family owned retail stores and the livelihood of thousands of employees.

The single most important thing you can do is contact your Senators and Representatives while they are back home this month and begin to educate them as to the severe financial consequences you and your employees will suffer if these tax increases are enacted into law. The war is far from over, even if we win this battle via a Presidential veto. 2008 is an election year, and you can be assured that even if we dodge the bullet this year, we face the same bullet a year or two down the road with perhaps a not so supportive White House. We are talking about your survival. Is there any better reason to become engaged in this fight?

-Andrew Kerstein, NATO President

NATO Leads the Battle (con’t)

wholesalers and retailers to pay the higher tax on all packs of cigarettes in stock on the effective date of the bill which would be January 1, 2008. The Senate floor stocks tax provision alone could financially cripple tobacco retailers to the point where they would be forced to close.

With the potential economic consequences to the entire tobacco industry being so devastating, NATO began taking action to oppose the federal cigarette and tobacco tax increases in May. These efforts have included sending alerts and petitions to NATO members, faxing letters to all 535 U.S. Senators and U.S. Representatives, publishing letters-to-the-editor in newspapers across the country, submitting NATO News articles to trade magazines to educate retailers about SCHIP, writing to every Governor and state legislative leader about the state cigarette and tobacco tax revenue their state would lose if the federal tax increases go into effect, targeting key U.S. Senate and House committee members with hand-delivered letters explaining the financial cost of the tax increases to retailers, updating members through NATO E-News Bulletins, urging members to meet with their senators and representatives, and coordinating strategy with allied retail and wholesale trade associations.

Time to Take Action

Now that Congress has adjourned and the senators and representatives will not return to Washington, DC until just after Labor Day, NATO members need to make every effort to contact their Senators and Representatives while they are in their home states. To determine the telephone number of the local office for your U.S. Senator, go to www.senate.gov and click on the “Find Your Senator” box. Then, click on the link to each of your senator’s websites and look for the “Contact Us” navigation button which will display a page with the address and telephone number of the local office. For your U.S. Representative, go to www.house.gov and fill in your zip code in the “Find Your Representative” box and then visit the website for your representative’s local office information.

Armed with the telephone numbers, call the local offices and speak with a staff member of your two senators and representative about your concerns with the tax increases. The magnitude of the proposed tax hikes would substantially reduce your tobacco sales and directly impact the profitability of your store. Moreover, the higher price of tobacco products would result in more store robberies putting your employees at risk as well as allow a black market in untaxed cigarettes and tobacco products to flourish.

NATO’ Future Actions

NATO has already prepared a letter to send to President George Bush and several of his key Cabinet members urging him to veto the SCHP legislation because it includes regressive and punitive tax increases. Provided that the President follows through on the veto threat contained in the OMB policy statements, Congress will then have to begin negotiations with the Bush administration since both Congress and the President want to reauthorize the SCHIP program which would otherwise expire on September 30th. We are hopeful that the President will hold steadfast that SCHIP should only be expanded by an amount that can be absorbed into the federal budget without raising taxes.

In addition, NATO is planning conference calls with eight other retail and wholesale trade associations. These calls will help focus many more retail and wholesale businesses on contacting their members of Congress and the Bush administration to express their opinion about the cigarette and tobacco tax increases in the legislation. This war over the SCHIP program is far from over and NATO members need to continue contacting their elected officials and urging their employees and customers to do the same.

State Success Rate High

For NATO, 2007 is a watershed year because the association and its members have responded to more tobacco-related legislative bills on the state and federal levels than in any previous year since NATO was formed in 2001. Despite the record number of legislative issues this year, NATO has compiled an 81% success rate by either defeating or significantly amending cigarette tax increases, OTP tax increases and smoking restrictions on the state level. This success is due in large part to the grassroots action taken by NATO members to urge their state senators and representatives to oppose large tobacco tax increases and overly restrictive smoking restrictions.

Call for Board Candidates

This November, NATO will members will be voting to elect five retailers and three manufacturer/distributor members to serve on the NATO board of directors. To be eligible for a board seat, a candidate must be an owner, partner, shareholder, officer or employee of a NATO member. The board meets approximately five times a year (three by conference call and two in-person meetings). To become more involved in NATO, consider being a candidate for the board. Please call Executive Director Tom Briant at 1-866-869-8888 by November 7th to be placed on the board candidate ballot.

Business Insurance Program

Besides assisting NATO members respond to tobacco-related legislation, the NATO Membership Benefits Committee has been working with an insurance consultant and Allied Insurance Company on a business owner’s insurance package for NATO retail and wholesale members. This kind of insurance would cover buildings, fixtures and equipment, general liability including bodily injury and property damage, theft and other general business losses. This program has been approved by the NATO Board of Directors and a pilot program will be tested with NATO members in Iowa and Missouri. If the pilot program results are encouraging, then the business owner’s insurance program will be offered to all NATO members nationwide.

Welcome New Members

NATO welcomes the following new members: Allison Wholesale, Inc. of Paint Rock, Alabama, Glidewell Distributing of Ft. Smith, Arkansas and U.S. Flue-Cured Tobacco Growers of Timberlake, North Carolina.

A Leader in Advocacy on Tobacco Issues

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