In this second part of the halftime report for Tax Foundation Forum: Making Sense of Profit Shifting, we discuss the key takeaways from the first half of our series on profit shifting (read part I here). In this post, we...
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- What is a Cigarette? (Or, Why Is The Tax Code So Complex?)
What is a Cigarette? (Or, Why Is The Tax Code So Complex?)
Our tax code is enormously complex. The federal code and regulations alone are over 9 million words; War and Peace, by contrast, is a mere 560,000. Add on state and local codes and regulations, and it's a lot of pages.
One example of the verbosity required by our complex tax system is New Mexico's recent re-definition of "cigarette." Cigarettes are taxed in New Mexico, as everywhere else, and at a pretty hefty rate. As the tax goes higher and higher, there's more of an incentive to get out of it, and one way is to alter cigarettes so they no longer fall under the state's tax code definition. When the state catches on, it adds more to the definition to encompass the new products, and the cycle then repeats itself. And the tax code gets bigger and bigger.
So now, New Mexico's definition of cigarette is either a roll of tobacco wrapped in paper, or a roll of tobacco wrapped in a substance containing tobacco, weighing no more than 3 pounds per 1,000 stocks, and having three or more of the following characteristics:
(1) it has a typical cigarette size and shape;
(2) it has a cellulose acetate or other cigarette-type integrated filter;
(3) it has a filler primarily consisting of flue-cured, burley, oriental, or unfermented tobaccos or has a filler material yielding the smoking characteristics of any of those tobaccos;
(4) it has a filler, binder and wrapper that together contain three percent or more by weight of total reducing sugars and four percent or less by weight of non-reducing sugars;
(5) it is sold in soft packs, hard packs, flip-top boxes, clam shells, or other cigarette-type packages;
(6) it is sold in a package that labels the product as a cigarette or a cigarette substitute, or in a package that does not clearly and conspicuously declare that the product is a cigar;
(7) it is available for sale in packages of five, ten, twenty or twenty-five sticks;
(8) it is available for sale in cartons of ten packages;
(9) it is marketed or advertised to consumers as a cigarette or cigarette substitute; or
My guess is that "typical cigarette size and shape" will be the next part that will require further explanation as revenue demands grow and the tax code grows with it.
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