Proposal Clears the Air on Michigan’s Cigar Tax Conundrum

There’s a bill headed to the Michigan State Senate that has cigar shop owners holding their breath. Without it, shops like Battle Creek’s Corona Smoke Shop might not be able to hang on. A 2012 law placed a 50-cent cap on the sale of premium cigars to help reign in out-of-control taxes that would hurt small businesses that sell them. The cap is set to expire on Oct. 1^st. 63^rd District State Rep. Matt Hall (R-Marshall) sponsored a bill to make that cap permanent. House Bill 4485 has now been approved by the Michigan House as of May 18, 2021 moves to the Senate for approval.

Amanda Phebus, owner of Corona Smoke Shop at 275 West Columbia in Battle Creek remembers the days before the cap. “I’ve been in the business for 22 years, and the tax on cigars just kept creeping up every year,” said Phebus. In 1992, the tax was capped at a steady fifty cents. “On top of that, our suppliers also increase prices every year, so it can be hard to compete with some of the online companies.”

“You’re looking at taxes increasing to 32 percent without this cap in place. That’s a huge increase – to around three or four dollars per premium cigar,” said Hall, of Marshall. “That would harm many small, local cigar lounges that were shut down by Governor Whitmer in response to COVID-19 and have been struggling to get by. We don’t want to encourage people to shop for these products elsewhere. We want these small businesses to be able to be competitive – and this plan works toward that.”

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Phebus operates cigar shops in Battle Creek, Jackson, Albion, Eaton Rapids and will be opening one soon in Williamston. “Without that cap, it will hurt small brick and mortar businesses like ours in Michigan. Buying online definitely hurts us, and we’d have no prayer of competing if the current cap is allowed to expire. It’s hard enough to compete now.”

Hall noted premium cigar sales increased in the state in 2012 when the cap was originally put in place, and the proposal will allow Michigan shops and lounges to be competitive. According to testimony when the legislation was in committee, tax revenue also increased 30 percent after the cap was implemented.