WASHINGTON -- Hundreds of small tobacco shops that let smokers roll their own cigarettes soon could be out of business under federal legislation classifying them as manufacturers, subjecting them to the same taxes and regulations as the broader industry, reported The Wall Street Journal.
Such stores have spread rapidly over the past few years by capitalizing on technology and loopholes that let them offer cigarettes often at half the price of ready-made brands.
An amendment, part of the $27 billion federal highway bill approved by Congress on Friday, expands the definition of a tobacco manufacturer to include businesses operating roll-your-own (RYO) machines, making them responsible for federal excise taxes.
Lawmakers passed the amendment after the U.S. Government Accountability Office (GAO) estimated in April that changes in the market for RYO cigarettes had reduced federal revenue by as much as $492 million between April 2009 and September 2011.
It also followed heavy lobbying by major cigarette companies such as Altria Group Inc., as well as convenience store groups such as NACS, which argued such shops were not playing under the same rules as their members.
Owners of the shops have accused the cigarette industry and major retail chains of trying to extinguish lower-priced competition.
Customers at RYO shops buy loose tobacco and pour it into ATM-sized machines that can make 200 cigarettes in under 10 minutes. RYO Machines of Ohio, the largest maker of the machines, has sold approximately 2,000 of them to hundreds of shop owners since it began making them in 2008. The cigarettes typically are made with leaves labeled "pipe tobacco."
Critics said the shops have taken advantage of changes in tobacco taxes enacted in 2009, when the federal excise tax on a carton of cigarettes rose to $10.066 from $3.90 and the tax on a pound of RYO tobacco increased to $24.78 from $1.0969. The tax for a pound of pipe tobacco, traditionally intended for pipes, only rose to $2.8311 from $1.0969.
The Alcohol & Tobacco Tax & Trade Bureau declared in 2010 that retailers using RYO machines were manufacturers, but RYO Machines secured a court injunction putting the ruling on hold.
The company also hired lobbyists to try to slow attempts by state lawmakers to slap restrictions on the retailers, said the report.
Earlier this year, Senator Max Baucus (D.-Mont.) sponsored a federal amendment that would classify the stores as manufacturers, arguing owners of such machines were taking "advantage of an unintended tax loophole.''
But owners of RYO shops say they should not be treated the same as major cigarette manufacturers, whose machines can roll cigarettes about 1,000 times faster. They also note their shops are zoned for retail use, not manufacturing.
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