The ruling, issued by the U.S. Department of the Treasury's Alcohol & Tobacco Tax & Trade Bureau (TTB), addresses the industry practice in which some stores have sold "roll-your-own" cigarettes for as little as $16 a cartontypically less than half the cost of major [image-nocss] brands such as Marlboro and Camel.
About 150 tobacco outlets in some 20 states have engaged in the activity, using high-speed rolling machines that yield a carton of cigarettes in eight minutes, according to an estimate one maker of the devices provided to the newspaper.
"We do not believe that Congress intended for a consumer to be able to purchase at retail commercially manufactured cigarettes upon which tax has not been appropriately paid," the tobacco-tax bureau said in its ruling. "We also do not believe Congress intended to authorize a commercial cigarette-manufacturing operation to occur on premises not subject to federal regulation."
Manufacturers of cigarettes must obtain permits from the tobacco-tax bureau, comply with recordkeeping rules and pay $10.07 in federal excise taxes for each carton of cigarettes they make. The tobacco-tax bureau's ruling suggests that many retailers may now find it cost-prohibitive to own or lease such machines, said the report.
One reason that retailers have been able to offer the machine-made cigarettes at bargain prices, the Journal reported in August, is that they or their customers have been inserting into the machines tobacco labeled "pipe tobacco." This substantially reduces the stores' and smokers' costs because the federal excise tax on pipe tobacco is $2.83 a pound, compared with $24.78 a pound for the rolling tobacco traditionally used to make hand-rolled cigarettes.
Congress in 2009 sharply raised the federal excise tax on rolling tobacco, while increasing more modestly the rate for pipe tobacco.
Some members of Congress and some cigarette manufacturers, such as Vector Group Ltd.'s Liggett Vector Brands Inc., have decried the wrinkle in federal tax law that has led some makers of rolling tobacco to relabel the product as pipe tobacco, said the report.
The tobacco-tax bureau has been soliciting industry input to help write new rules to clearly differentiate the two types of loose tobacco. Several loose-tobacco makers have said they are adhering to current law and regulations and that they merely reacted to a dramatic tax increase on roll-your-own tobacco.
Click hereto read TTB Ruling No. 20104.
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