Will Taxes Tamp Out Local Cigar Industry?

By BAIRD HELGESON, The Tampa Tribune - Published: October 6, 2007

TAMPA - Wallace Reyes' tiny cigar shop is hidden in a Columbus Drive strip mall known mostly as the home of La Teresita grocery. The windows are barred. The doors are locked, even during business hours. A 125-pound German shepherd named Byron stands guard inside.

It's a long way from the heyday of the 86-year-old Gonzalez Habano Cigar Co., which Reyes' family has owned for four generations. The company once had a factory on Howard Avenue that shipped 200,000 cigars a year to the Midwest and East Coast.

Sitting in his office, among ashtrays and browning pictures of old cigar factories, Reyes made his case against a few unlicensed Ybor City cigar rollers who he says don't pay taxes on the cigars they make.

Cigar makers who manufacture without a license take on newfound significance as Congress and President Bush debate legislation that would raise the tobacco tax to pay for children's health care. Under the plan, the tax of 4.8 cents a cigar would jump to as much as $10 a cigar. Bush vetoed the legislation this week, but the House will attempt an override Oct. 18.

Tampa cigar makers, who reportedly produce 80 percent of cigars smoked in the United States, have watched the legislation advance nervously. The local cigar industry still employs about 1,000, mostly at Hav-A-Tampa, which is owned by international tobacco company Altadis. The number of local cigar rollers is thought to be about 100.

Makers Renew License Annually

Aside from the nickel tax, licensed cigar manufacturers must comply with requirements for storing tobacco, finished cigars and packaging. The license costs $1,000 each year to renew.

Reyes and other local cigar makers said that a steep increase in the tobacco tax will help rollers who make cigars without a permit. Illegal cigar rollers can use the savings to undercut law-abiding makers, they said.

'Why should I have the burden of responsibility of paying taxes when others don't?' asked Reyes, 54.

Local cigar makers and the industry's lobbying group agree that a handful of rollers are likely operating in Tampa without a license. And they said it's probably been that way since the government began to tax tobacco products in 1862.

Identifying unlicensed cigar makers is difficult

Back in the late 1800s, cigar and cigarette makers were required to post their permits in their windows so they could be viewed by federal authorities who rode by on horseback.

Today, licensed manufacturers of tobacco products don't have to display their permits or show them to the public, under federal law. The federal tax code prohibits the release of the permit information, except to law enforcement.

Art Resnick, a spokesman for the U.S. Department of Treasury's Alcohol, Tobacco Tax and Trade Bureau, said the agency has investigated illegal cigar operations in Tampa during the past year. He would not reveal what the agency found, but said the investigation continues.

Top

Tampa has eight cigar manufacturers with active licenses, according to the tobacco tax and trade bureau. He would not reveal what the agency found, but said the investigation continues. Tampa has eight cigar manufacturers with active licenses, according to the tobacco tax and trade bureau.

One maker, the owner of La Herencia de Cuba in Ybor City, showed The Tampa Tribune his tax number and the tobacco tax forms he files each month. Others, like the owners of Stogie Castillo's Cigars and Havana Dreams Cigar Factory, didn't have the information immediately available.

Lazaro Rodriguez, who owns Havana Dreams, said the 17 rollers in his Ybor City factory make 1,200 cigars a day. He claims to have the largest handmade cigar operation in the country.

Rodriguez, 35, said rumors about illegal makers have long swirled in the local cigar industry, including allegations about his own business. He said much of it stems from other cigar makers who are jealous of his success. 'It's crazy,' said Rodriguez, who fled Havana by raft in 1992. 'The local cigar industry should be celebrated, not this.'

Cigar makers from Nicaragua and Cuba roll about 300 a week at Stogie Castillo's, located at Centro Ybor. The cigar rollers sit in the window and regularly draw a small audience of passers-by. Michael Dunn, an owner, didn't know the company's tax permit number, but said his business is in good standing with the federal government.

Resnick said the amount of tobacco tax dollars lost to illegal cigar makers is likely small, perhaps a fraction of a percent.

As a tax avoidance scheme, illegal cigar rolling is the modern equivalent of making moonshine, Resnick said. Last year, Americans bought about 400 billion cigarettes and 5.3 billion cigars, which accounted for $14 billion in tobacco taxes.

Illegal Cigarettes Have Priority

Norman Sharp, president of the Cigar Association of America, said federal authorities worry more about illegal cigarettes coming into the country than about a few cigar rollers who don't pay taxes.

Last year, New York state officials arrested 10 people on charges of bringing $40 million of untaxed cigarettes into the country.

Reyes, one of the nation's last master cigar makers, is concerned by the lack of local enforcement.

Reyes and his wife, Margarita, make about 40,000 cigars a year, an amount they used to roll in four months during the mid-1990s. He made a 100-foot cigar last year that landed him in the Guinness World Records. The feat garnered a good dose of publicity, but not much money.

Reyes recounted how the business survived the Great Depression, World War II and smoking bans.

These days, he's not sure it can survive a few cigar makers who don't pay taxes and sell cheap cigars.

________________________

Reporter Baird Helgeson can be reached at (813) 259-7668 or bhelgeson@tampatrib.com.