Texas high court overturns cigarette-tax ban

Camel, a Reynolds American brand, and Newport, a Lorillard brand, cigarettes are displayed for sale, Tuesday, July 15, 2014, in Doral, Fla. Cigarette maker Reynolds American Inc. is planning to buy rival Lorillard Inc. for about $25 billion in a deal to combine two of the nation's oldest and biggest tobacco companies. (AP Photo/Lynne Sladky) less Camel, a Reynolds American brand, and Newport, a Lorillard brand, cigarettes are displayed for sale, Tuesday, July 15, 2014, in Doral, Fla. Cigarette maker Reynolds American Inc. is planning to buy rival ... more Photo: Lynne Sladky, STF Photo: Lynne Sladky, STF Image 1 of / 80 Caption Close Texas high court overturns cigarette-tax ban 1 / 80 Back to Gallery

AUSTIN -- The Texas Supreme Court on Friday overturned a lower court's decision that declared a state tax on small cigarette manufacturers illegal.

The decision is expected to rekindle a simmering legal fight between the state and small tobacco companies over a 2013 law that levied a 55-cent tax on cigarettes made by small tobacco companies that were not part of a landmark 1998 settlement with the four biggest companies.

In a 23-page opinion written by Justice Don Willett, the court reversed a decision last year by Austin's 3rd Court of Appeals that had tossed out the 3-year-old tax on the small manufacturers..

"Whatever may be said of the tax, it is not 'an arbitrary, unreasonable, or unreal one,' and it thus

does not violate the Equal and Uniform Clause" -- a provision of the law that says taxation has to be applied equally, the opinion states.

The legal challenge centers on House Bill 3536 that imposed a 55-cent fee on each pack of cigarettes produced by the small tobacco companies -- a law that its author, state Rep. John Otto, R-Dayton, said was intended to "level the playing field" and tax all cigarette manufacturers at the same rate.

The nation's four largest tobacco companies currently pay more than half a billion dollars to the state each year as part of a 1998 lawsuit settlement, following a legal battle in which 46 states sued the big companies for a range of fraudulent practices,including their production of producing high-nicotine tobacco and deceptive advertising often aimed at children.

After HB 3536 was signed into law, the small tobacco companies protested the new tax in a lawsuit, saying they had not engaged in the fraudulent practices and should not penalized. Both the trial court and the appeals court had agreed.

Attorneys in the case could not immediately be reached for comment, but an appeal is considered likely.

Texas Attorney General Ken Paxton applauded the unanimous decision.

"Tobacco producers who have not taken responsibility for the ill-health effects of their products must not enjoy a competitive advantage over producers who do," he said in a statement. "Today's ruling ensures that certain tobacco companies will be unable to market cheaper products to younger audiences by avoiding the fees other companies are voluntarily paying, and the marketing restrictions they have agreed to."