Counterpoint: Back Taxes Eventually Will Bite Retailers

NACS outlines its position on RYO machines

Corey Fitze, Director of Government Affairs

ALEXANDRIA, Va. -- In response to a recent Wall Street Journal article regarding roll-your-own (RYO) tobacco manufacturers, I am writing to rebut the false claims being made by the RYO tobacco machine companies. [Editor's Note: See Point: RYO Cigarette Shops on a Roll in this issue of CSP Daily News to read the Wall Street Journal story.]

First and foremost, the company RYO Machine Rental, or more commonly known as RYO Filling Station, promotes the use of pipe tobacco in their machines rather than RYO, or loose tobacco. They do this to take advantage of a tax loophole that saves the customer roughly $20 for a carton of cigarettes.

The convenience-store industry is always looking for the next "greatest thing." We are entrepreneurs to the core; however, we can only act with market certainty. We have reason to believe that in the next three-to-five years, once a federal lawsuit is resolved, all retailers who possess these machines will have to pay back-taxes on every cigarette their machines have produced. More than 20 states have come out with either regulatory or legislative language deeming retailers who own these machines to be tobacco manufacturers. The uncertainty in the marketplace makes it harder for small business owners to plan for the future.

Second, RYO-machine companies compare a machine that manufactures a carton of cigarettes in less than 10 minutes to a coffee grinder in a grocery store that customers can use; however, grocery stores are not evading taxes when customers make their own coffee vs. purchasing coffee already ground up. The more appropriate comparison is a buffet: Just because a restaurant has a buffet, that doesn't mean the customers are "cooking" their own food. The restaurant still has to be treated like a restaurant, thus they have to pay the applicable taxes and follow all FDA regulations and local restrictions.

The RYO-machine companies claim their opposition is led by "big tobacco"; however, they seem to have missed the fact that more than 75 associations and companies (none of them being tobacco manufacturers) have gone on record supporting legislation deeming retailers who own machines to be tobacco manufacturers. They also ignore the fact that the National Fire Protection Agency sent a letter to all state fire marshals stating that retailers who on RYO machines should be treated as manufacturers for purposes of fire-safety laws.

Finally, the RYO-machine companies claim that treating them as manufacturers is "anti-competitive." This is plainly false. The c-store industry is the most competitive market in the country. We are the only industry in America that advertises prices on 20-foot signs in front of our stores. We are the only industry in America where someone will drive 5 miles out of their way to save 3 cents on products we sell (fuel). We know what competition is because our industry lives and dies by it every day; however, the current state of uncertainty surrounding the regulatory treatment of retailers who own RYO machines makes the market inherently uncompetitive and demands immediate congressional intervention.

Corey Fitze is director of government affairs for the National Association of Convenience Stores. If you would like to join the coalition fighting against roll-your-own manufacturers, contact Fitze at [email protected].

By Corey Fitze, Director of Government Affairs
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