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Big Tobacco Companies Spending Big To Fight State Taxes (RAI, MO)

It is probably fair to say both litigation and public relationship costs are cost of doing business for the big tobacco companies.

American tobacco giants, facing state ballot measures that would sharply increase excise taxes or expand smoking bans, are fighting back. They are spending tens of millions of dollars and, in some cases, pushing rival propositions that sound like tough restrictions but would actually ease antismoking laws already on the books.

The campaign drawing most of Big Tobacco's attention is in California, where Reynolds American Inc. and Philip Morris USA, along with parent Altria Group Inc., have already sunk a combined $55 million into a drive to oppose increasing taxes on a pack of smokes by $2.60. The measure, on the November ballot, would generate an estimated $2.1 billion in annual revenue for the state and make California's tobacco excise tax, currently at 87 cents a pack, the highest in the nation. Proceeds from the tax would be used to finance health programs, primarily for children.

The companies are spending so heavily there because the stakes are so high. Philip Morris, the industry's largest cigarette maker, says that California is its single-largest domestic market. Reynolds, the nation's No. 2 tobacco company, says the state accounts for about 6% of its cigarette sales. "Clearly, the impact of California would put pressure on earnings," said Dianne Neal, Reynolds's chief financial officer, during an analyst conference in late July. During the same conference, Ms. Neal said that, altogether, the company planned to spend $40 million to defeat tax increases and smoking bans on state ballots around the country this November.