Document OJMDEdE3b2Yr9xdd604KMjk0L

MAFCO CONSOLIDATED GROUP INC (Form: 10-K, Received- 03/28/1997 00 00 0 .. Page 13 of 116 11 Excise Taxes Cigars and pipe tobacco have long been subject to federal, state and local excise taxes, and such taxes have frequently been increased or proposed to be increased, in some cases significantly, to fund various legislative initiatives. From 1977 until December 31, 1990, cigars were subject to a federal excise tax of 8 5% of wholesale list price, capped at $20.00 per thousand cigars Effective January 1, 1991, the federal excise tax rate on large cigars (weighing more than three pounds per thousand cigars) increased to 10 625%, capped at $25.00 per thousand cigars, and increased to 12.75%, capped at $30 00 per thousand cigars, effective January 1, 1993. However, the base on which the federal excise tax is calculated was lowered effective January 1, 1991 to the manufacturer's selling price, net of the federal excise tax and certain other exclusions. In addition, the federal excise tax on pipe tobacco increased from $0 45 per pound to $0 5625 per pound effective January 1,1991 The excise tax on pipe tobacco increased effective January 1,1993, to $0 675 per pound. The federal excise tax on little cigars (weighing less than three pounds per thousand cigars) increased from $0.75 per thousand cigars to $0.9375 per thousand cigars effective January 1,1991. The excise tax on little cigars increased to $1,125 per thousand cigars effective January 1, 1993 The increase in the federal excise tax rate in 1991 and again in 1993 did not have a material adverse effect on the Company's product sales. In the past, there have been various proposals by the federal government to fund legislative initiatives through mcreases m federal excise taxes on tobacco products In 1993, the Clinton Administration proposed a significant increase m excise taxes on cigars, pipe tobacco, cigarettes and other tobacco products to fund the Clinton Administration's health care reform program The Company believes that the volume of cigars and pipe tobacco sold would have been dramatically reduced if excise taxes were enacted as originally proposed as part of the Clmton Administration's health care reform program Future enactment of significant mcreases m excise taxes, such as those initially proposed by the Clmton Administration or other proposals not linked specifically to health care reform, would have a material adverse effect on the business of the Company The Company is unable to predict the likelihood of the passage or the enactment of future increases in tobacco excise taxes Tobacco products are also subject to certain state and local taxes Deficit concerns at the state level contmue to exert pressure to mcrease tobacco taxes Smce 1964, the number of states that tax cigars has risen from six to forty-one. Since 1988, the following eleven states have enacted excise taxes on cigars, where no prior tax had been in effect: California, Connecticut, New Jersey, New York, North Carolma, Ohio, South Dakota, Rhode Island, Illinois, Missouri and Michigan State excise taxes generally range from 2% to 75% of the wholesale purchase price In addition, the following nine states have increased existing taxes on large cigars smce 1988: Arizona, Arkansas, Idaho, Iowa, Maine, New York, North Dakota, Vermont and Washington. The following five states tax little cigars at the same rates as cigarettesCalifornia, Connecticut, Iowa, Oregon and Tennessee Except for Tennessee, all of these states have mcreased their cigarette taxes since 1988 State cigar excise taxes are not subject to caps similar to the federal cigar excise tax From time to time, the imposition of state and local taxes has had some impact on sales regionally. The enactment of new state excise taxes and the increase in existmg state excise taxes are likely to have an adverse effect on regional sales as cigar consumption generally declines, which in turn is likely to have an adverse effect on the Company's results of operations. The Company is unable to predict the materiality or likelihood of the enactment of new state excise taxes or the increase in existmg state http.//www.edgarpro.com/EFX_dll/EDGARpro dlPFetchFihngHTMLl`?ID=969943&Ses 10/19/2003