Tobacco giant Altria is asking its home state of Virginia to take a fresh look at the way it taxes tobacco products, especially those based on new technology that federal regulators find would pose less health risk than cigarettes.
Sen. Emmett W. Hanger Jr., R-Augusta, who is co-chairman of the powerful Senate Finance Committee, has proposed an amendment to the state budget that would direct an existing legislative subcommittee to study the current system of taxing tobacco and consider preferential treatment of new, "modified risk" products approved by the Food and Drug Administration.
The proposed amendment would ask the Joint Subcommittee to Evaluate Tax Preferences to review potential "modernization" of state tax code "to reflect advances in science and technology in the area of tobacco harm reduction, and the role innovative non-combustible tobacco products can play in reducing harm, including products that produce vapor or aerosol from heating tobacco or liquid nicotine."
'Heat not burn'
Altria has approached the leaders of the House and Senate money committees about potential tax treatment of a new "heat not burn" technology that it would market and distribute in the U.S. for Philip Morris International, a former subsidiary - if the FDA approves pending twin applications to sell the product and inform consumers of its reduced health risk.
The IQOS system would use Marlboro Heatsticks to heat the tobacco without burning it and releasing the most harmful chemical compounds for human health, said the company, which regards the product as a new business platform for consumers to enjoy tobacco without the health risks of smoking cigarettes.
Altria is looking for a big payoff for its support of FDA regulation of nicotine, the primary chemical component in tobacco. The federal agency announced a plan last summer for regulations to carry out the Family Smoking Prevention and Tobacco Control Act, adopted in 2009.
Philip Morris International, a former subsidiary that Altria spun off as an independent company in 2008, has filed applications at the FDA to allow the new product to be sold in the U.S. and to certify that it represents a reduced health risk to consumers.
The company has an agreement for Altria to sell the product, now manufactured abroad and marketed in other countries, if the FDA approves the applications.
Altria already has extensive interests in smokeless tobacco products, such as Copenhagen and Skoal, and e-cigarette products that use liquefied nicotine to produce vapors that don't burn tobacco. The IQOS system represents a third platform for the company's marketing of alternative tobacco products that heat, but don't burn tobacco.
"We aspire to be the U.S. leader in authorized, non-combustible, reduced-risk products," Altria Chairman and CEO Marty Barrington declared at a daylong presentation to investors Nov. 2 in Richmond.
Altria representatives have demonstrated the technology for assembly leaders. The system includes a charger and a pen-like holder into which the Heatstick is inserted.
Legislators hope the new technology eventually would lead to manufacturing jobs in the Richmond area, where Altria bases its headquarters, a research and technology center, and a major cigarette manufacturing plant operated by its Philip Morris USA subsidiary.
Review before change
House Appropriations Chairman Chris Jones, R-Suffolk, said he agrees with Hanger that "more review is needed" before Virginia makes any changes to its policies on taxing tobacco.
However, Jones said the new technology "certainly has the potential to offer a healthier alternative for those who would choose to use the product."
The study proposed by Hanger also could have broader implications for state and local taxation of tobacco products. Currently, Virginia taxes cigarettes at 1.5 cents each, or 30 cents for a pack of 20, one of the lowest rates in the nation. In addition, 93 localities - mostly cities and towns, as well as Fairfax and Arlington counties - impose local taxes on cigarettes.
The state imposes a tax of 10 percent on the manufacturer's selling price for cigars, pipe tobacco and other products. It taxes snuff tobacco by weight and does not impose any tax on e-cigarettes or vapor products.
"I want to study our level of taxation," said Hanger, who also chairs a joint subcommittee on local fiscal stress, including sources of revenues for counties, cities and towns.
His budget amendment would direct the tax preference subcommittee to consider "possible reforms to the taxation of tobacco products that will provide fairness and equity for all local governments and also ensure stable tax revenues for the commonwealth."
In the meantime, Hanger does not want the General Assembly to act until studies and reports are completed.
"It would be my intent that all of these type bills be carried over and come back next year with a study of how to make it more equitable across the board," he said.
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