ROLL-YOUR-OWN CIGARETTE STORES GOING UP IN SMOKE|
Posted On: July 6th, 2012
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For smokers who bargained on roll-your-own cigarette stores for cheap smokes, it looks like those days are numbered.
On Friday, President Barack Obama is expected to sign into law a federal highway bill with a section that redefines tobacco manufacturers to include any business with a roll-your-own cigarette machine and taxes those products at the same rate as packaged smokes.
The move comes a month after Illinois increased taxes on such roll-your-own machine-made cigarettes.
Marcia Smith, 47, of Lake County, decided after the state tax increase that she should move her Smokes & Such tobacco shops in Skokie and Gurnee to Wisconsin, where taxes on rolled cigarettes are lower.
If Obama signs the law, she said she’ll shut her doors.
The machines, which cost about $33,000 each, allow customers to pick their own tobacco and pour it into a device that can roll the tobacco into a carton, or about 200 cigarettes, within minutes.
Since 2009, RYO stores have been selling cigarettes with far lower taxes than packaged cigarettes.
Why? In 2009, Congress more than doubled the federal excise tax on cigarettes, and, to bring RYO tobacco in line with packaged smokes, raised the tax on RYO tobacco from $1.10 a pound to $24.78 a pound. Yet it raised the tax on pipe tobacco by a far smaller amount — from $1.10 to $2.83 a pound.
And RYO stores popped up across the country.
Since the 2009 tax increases, Congress’ Government Accountability Office says RYO tobacco sales have fallen 74 percent while pipe tobacco sales have exploded, jumping from 3.2 million pounds to 30.5 million pounds a year, according to government reports.
The GAO concluded the increase was due to consumers switching to pipe tobacco for their machine rolled cigarettes and not to a sudden jump in pipe smoking.
The GAO found that a carton of RYO cigarettes cost half as much, or even less, than a carton of discount cigarettes at a store because of the lower taxes.
State and local governments have been trying to close the loophole as well, with Cook County raising taxes on RYO cigs in March and Illinois increasing the taxes on them last month, when the state sharply raised taxes on all tobacco products to help fund Medicaid. Starting Aug. 1, cigarettes made by RYO machines in Illinois stores will be taxed the same amount as company-manufactured cigarettes, and retail owners of the machines have to get a machine-operator license.
“It doesn’t matter where the cigarettes were rolled,” said Susan Hofer, spokeswoman for the Illinois Department of Revenue. “It matters that you walk out of the store with a pack of cigarettes.”
There are 60 RYO machines in the state, the department estimates.
Noel Valenti, 43, of DuPage County, owns six of them.
Valenti opened three Cig tobacco stores about a year ago to supplement his work as an independent construction contractor.
He operated two stores in Chicago and one in Worth but closed down one of his stores and moved two shortly before Cook County raised RYO taxes. Now, the issue has followed him out to the suburbs, where he lives and co-owns stores in west suburban Westmont in DuPage County and Mokena in Will County.
“They’re basically making us follow the same regulations as big tobacco,” Valenti said, “But [we can’t] reap the same rewards.”
Valenti calls it a “killing” of small businesses and said closing his stores means his 21 employees lose their jobs.
He maintains that the new regulations make it incredibly difficult to continue operating the RYO machines, particularly the requirement to obtain a manufacturer’s license.
Valenti and Smith said they offer pipe tobacco to give their customers more choices.
Smith, who got into the business two years ago after quitting her job at a screen-printing business, owns three RYO machines.
She calls the law “un-American.” Smith argues that things aren’t equal for the small stores that can’t compete with larger tobacco companies.
“It’s quite clear that this is politicians and big tobacco working against small businesses,” Smith said.
It’s true the Altria-owned tobacco giant Philip Morris USA has been a strong backer of the federal legislation.
“They are cigarette manufacturers,” David Sutton, a Philip Morris spokesman, said. “And [they] should make tax payments, be regulated by the FDA and make state settlement payments just like other cigarette manufacturers.”
Valenti said if the federal bill becomes law, as expected, customers will go online or even cross state boundaries where taxes are cheaper in order to get their fix.
And what if the bill isn’t signed into law?
“I will go open up five or six [RYO] stores on the border of Illinois and Indiana,” Valenti said. “I’ll set up buses to transport” customers.”