The U.S. Senate passed the SCHIP legislation including all of the cigarette and tobacco tax rate increases by a 66-32 vote.

An amendment to lower the RYO tax rate and eliminate the floor stocks tax was not offered. The bill, passed by the U.S. House early this week, now has to either go to a House-Senate conference committee to have the differences between the House and Senate versions resolved or the House can accept the Senate version of the bill and send the bill to the president," said Tom Briant, executive director of the National Association of Tobacco Outlets (NATO). Neither the House nor the Senate passed version of the legislation has a floor stocks tax on large cigars. The floor stocks tax will apply to cigarettes and all other tobacco products.

"Given the President’s support for the bill despite his campaign promises not to raise taxes on any American who earns less than $250,000, we expect the bill to be signed into law," Briant said.

Also, there are slight differences in the cigarette and tobacco tax rates between the House and Senate versions of the bill because the Senate version added $300 million for dental care for children which slightly increased the tax rates. The new tax rates will go into effect on April 1, 2009, Briant said.

The Senate version of the bill would increase the tax on little/small cigars to $1.0066 per pack (the same tax rate on cigarettes) effective April 1, 2009. The House version of the bill would phase in the tax with the tax being 25 cents per pack on April 1, 2009, 50 cents per pack on Jan. 1, 2011, 75 cents Jan. 1, 2013 and $1 per pack on Jan. 1, 2015. This difference will need to be resolved by the House and Senate either through a conference committee or the House accepting the Senate bill in its entirety.

All manufacturers, wholesalers and retailers will be required to pay a floor stocks tax which is calculated by multiplying the amount of the tax rate increase on each kind of tobacco product by the inventory on hand as of April 1, 2009. The floor stocks tax is due to the federal government by August 1, 2009. "When NATO learns of more information about the floor stocks tax, that information will be passed onto members," Briant said.

NATO members rallied to defeat the bill, but the new administration was bent on using tobacco to fund this healthcare initiative. Briant hailed the efforts of NATO members to make their voice heard.

"On behalf of the NATO board of directors, the NATO legislative staff and myself, I want to extend a very sincere thank you for all of the calls, faxes, letters and e-mails that you, your employees and customers either made or sent to oppose this unfair tax increase," Briant said. "We fought right up until the final Senate vote and all of us at NATO appreciate your willingness to take your time to participate in the legislative process and make your opinions known."