Quote:
Originally Posted by MikeyC
What's OTP tax?
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Stands for
Other Tobacco Product, which includes any non-cigarette tobacco products (chw, pipe tobacco, snuff, dip, cigars, cigarillos, etc). Cigarettes, being a vastly larger market are taxed differently. Some states differentiate between "Little Cigars" and Cigarettes, while some simply consider former to fall into the latter.
As of January of 2008, all states except Pennsylvania and Florida have some form of cigar taxes, ranging from pennies per cigar up to about 75% of wholesale. This is why all the major online distributors base in those two states. Some states only tax if the value per cigar is above or below a certain price-point, and some states have extremely convoluted laws, but those two are simply no-tax, period. (for more information on OTP taxes, visit
http://www.taxadmin.org/fta/rate/otp.pdf)
Online distributors have one major advantage over any B&M: They supply a customer base of millions of people, which allows them to sell cigars as a less than "optimal" markup. "Optimal" markups in a retail business are defined by the book as 100% over cost. Since a large online-based warehouse operation has substantially less operating overhead per-cigar and no tobacco tax, they can sell cigars for low markups, such as only 25%, and still make a profit.
Combine no taxes, plus markup differences, with discounted massive bulk purchases from manufacturers and you begin to see why your local B&M will cost you considerably more for a box than CI or Famous might.
B&M's cater to people who are less concerned about money and more concerned about atmosphere and specific selections. For instance, there are many cigars that are released as B&M only cigars. Or a B&M may offer amenities such as lockers, cigar events, membership benefits, etc. They also offer the benefit of on-spot business. You have a problem with a purchase, or maybe you don't like your cigars, or maybe you're just impatient? You can drive that minute to your local privately owned shop where, more than likely, they will make good on your problems.
Also, there is the looming threat of your state sending you a tax bill for cigars purchased online. Believe it or not, and whether you think you're unlikely to get caught or not, it happens quite regularly.
All-in-all, I suggest you support your local B&M and buy cigars from them, even at a larger cost. You can soapbox all day about why that's a terrible idea or a good idea, or simply be indifferent, but remember that if all the B&M's shut down, that's support for the love of cigars we're losing where it counts against taxes or other unwanted incursions.