pricing and restrictions, also requires, in addition to other provisions that address tobacco sales, that tobacco products be priced at no more than 5% below the local competitive price (Requirement C.1.3).

The 5% discount is based on the lowest local-retail shelf price for a product (which includes excise taxes). Because the price in the commissary or exchange excludes state and local sales taxes, the actual discount is often larger than 5%. Indeed, the wide variation in sales taxes among states and localities means that discounts can be substantial in jurisdictions that have high sales taxes.

For sales of tobacco products in commissaries, the exchanges set the prices. This means that tobacco is not sold at cost, as are other commissary products; nor does the purchaser pay the 5% surcharge on commissary goods. 10 USC 2486(f) allows the secretary of defense to authorize the sale of tobacco products as noncommissary store inventory. As a result, the commissary shelf price equals the exchange retail price. Any revenue from the sale of tobacco products at a cost that is above the cost that the commissary pays to the exchange is treated as though it is a surcharge (10 USC 2484[3][B]).