Business

Roll-Your-Own Cigarette Shops Under Fire for Undercutting Cigarette Tax

NEW YORK (The Blaze/AP) — There is no place in the U.S. more expensive to smoke than New York City, where the taxes alone will set you back $5.85 per pack. Yet, those who visit Island Smokes, a “roll-your-own” cigarette shop in Chinatown, can walk out with an entire 10-pack carton for under $40, thanks to a yawning tax loophole that officials in several states are now trying to close.

 

Roll Your Own Cigarette Shop Being Sued for Tax Evasion

In this Sunday, Nov. 20, 2011 photo, a customer makes a cigarette using a machine at Island Smokes in New York. There is no place in the U.S. where it costs more to smoke than New York City, where the state and local taxes alone will set you back $6.46 per pack. Yet, smokers who visit Island Smokes, a "roll-your-own" tobacco shop in Manhattan's Chinatown, can walk out with an entire carton of cigarettes for an advertised price of $39.95, thanks to a tax loophole that officials in several states are now trying to close. (AP Photo/Seth Wenig)

 

Now, New York City’s legal department filed a lawsuit against Island Smokes on Nov. 14, arguing that the company’s Manhattan store and another on Staten Island are engaging in blatant tax evasion.

“By selling illegally low-priced cigarettes, defendants not only interfere with the collection of city cigarette taxes, they also impair the city’s smoking cessation programs and impair individual efforts at smoking reduction, thereby imposing higher health care costs on the city and injuring public health,” the complaint said.

Roll Your Own Cigarette Shop Being Sued for Tax Evasion

The store is one of a growing number around the country that have come under fire over their use of high-speed cigarette rolling machines that function as miniature factories, and can package loose tobacco and rolling papers into neatly formed cigarettes, sometimes in just a few minutes.

The secret to Island’s low prices is simple: Even though patrons leave carrying cartons that look very much like the Marlboros or Newports, the store charges taxes at the rate set for loose tobacco, which is just a fraction of what is charged for a commercially made pack.

Customers select a blend of tobacco leaves, intended to mirror the flavor of their regular brand. Then they feed the tobacco and some paper tubes into the machines, and return to the counter with the finished product to ring up the purchase.

The savings come at every level. Many stores sell customers loose pipe tobacco, which is taxed by the federal government at $2.80 per pound, compared with $25 per pound for tobacco made for cigarettes. The shops don’t pay into the cigarette manufacturer trust fund, intended to reimburse government health programs for the cost of treating smoking-related illness. And the packs produced by “roll-your-own” shops are generally also being sold without local tax stamps, which in New York include a $1.50 city tax and a $4.35 state tax.

Every package of cigarettes sold in the state, the suit argued, must bear a New York tax stamp. Businesses that sell unstamped cigarettes are violating both local law and the federal Contraband Cigarette Trafficking Act, city lawyers said. The suit, filed in federal court in Manhattan, also accused the store of violating a state law requiring cigarettes to meet fire safety standards.

Mayor Michael Bloomberg, who has advocated for aggressive legal action against cigarette sellers who avoid taxes, was to announce the lawsuit at a news conference Monday.

A pack contains 20 cigarettes and sells for around $13 in New York City after taxes are added. That compares with the national average in 2010 of $4.80 a pack, according to the Centers for Disease Control and Prevention. A pack from Island Smokes can cost less than $4 a pack.

Everything about the business is legal, precisely because the company is neither selling cigarettes, nor manufacturing them, said Jonathan Behrins, a lawyer for Island Smokes. It is simply selling loose tobacco and tubes, he said, and giving customers access to the rolling machines to make the cigarettes themselves.

“What’s the harm?” he said. “They are not selling unstamped cigarettes.”

Behrins said the business, whose owners include a New York City police captain, opened in April. It has developed a clientele of people who are trying to save money, and don’t mind spending some time at the machines, rolling their own product.

“It’s a certain demographic that rolls their own. They don’t really want to be bothered with Bloomberg reaching into their pockets.”

He likened the operation to a brew-your-own-beer store, and chafed at the idea that it might cost the city substantial tax revenue. Some smoke shops use roll-your-own machines that can churn out a carton of 200 cigarettes in eight minutes, but Behrins said Island’s machines are far slower. City investigators said it took them about 45 minutes to make one carton.

“This is why I don’t understand why the city has us in their sights,” said Behrins.

Legal battles over shops using roll-your-own machines are ongoing in several states.

Wisconsin’s Department of Revenue this year informed machine owners that they need manufacturing and distribution permits to operate. Enforcement of the order has been put on hold while a judge considers the matter. A hearing is scheduled for Nov. 23.

In West Virginia, a judge ruled in September that a tobacco shop there was violating state and federal law by failing to charge excise taxes on cigarettes made by customers in automated, on-site rolling machines.

New Hampshire’s Supreme Court ruled in July that a roll-your-own tobacco shop there was effectively a cigarette manufacturer, and thereby had to pay into the national fund that reimburses Medicare for smoking-related illnesses. The New Hampshire attorney general said those payments amount to about $5.33 per carton. The Massachusetts attorney general has also classified retailers who use roll-your-own machines as manufacturers.

That argument has also been adopted by the U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau, which issued a ruling Sept. 30 that retailers who give customers access to roll-your-own cigarette machines are manufacturers, and are subject to the same licensing rules as other cigarette makers. Those regulations, among other things, would require the shops to apply for a permit before going into business, post a bond, and keep certain inventory records.

All of those rulings are being fought by manufacturers of the machines, which include companies like RYO Machine Rental of Cincinnati, which said it has 1,700 machines at stores in 40 states.

Behrins called the legal attacks “downright frightening,” and blamed them on governments trying to drum up extra cash in tight times.

“They are looking for money every way they can. Parking tickets. Red light cameras. You name it. They are just ringing it up to bring in revenue.”

He also echoed claims, made by Island Smokes in some of its marketing materials, that the roll-your-own cigarettes produced in its stores are healthier than commercially produced packs, because they don’t contain some of the same chemical additives.

That brought a rebuke from New York City’s health commissioner, Dr. Thomas Farley.

“Claiming that this is healthier is a second scam … it’s totally false,” he said. He said the health risks from cigarettes come from inhaling the cancer-causing agents produced by burning tobacco leaves. “There is nothing safe about an `all natural’ tobacco leaf.”

Farley also defended the city’s high taxes on cigarettes, saying that studies had shown that they are pressuring people into quitting, or not taking up the habit, and thereby saving lives.

Comments (76)

1 2
  • Rational Man
    Posted on November 22, 2011 at 1:27am

    What a bunch of crap! When I was kid, my aunt and uncle used to roll their own and keep them in tupperware containers. They had a rolling machine that would kick out 4 or 5 at a time. I don’t smoke now, but when I did, I rolled my own for a while. It’s a much nicer fresher tobacco and smoother smoke. Way better than “taylor made” cigaretts.

    It’s crazy that the government wants to intrude on and cash in on the money saving simple things of life like this.

    Report Post » Rational Man  
  • dirtydog1776
    Posted on November 22, 2011 at 1:03am

    What the government can’t control or mandate, they seek to destroy.

    Report Post » dirtydog1776  
  • Gypsy123
    Posted on November 22, 2011 at 12:52am

    I am not a smoker But those who do smoke will find a way.

    Report Post » Gypsy123  
  • Wringeaux
    Posted on November 22, 2011 at 12:34am

    Quitting smoking is easy. Last month I did it three times !

    Report Post » Wringeaux  
  • ehbardin
    Posted on November 22, 2011 at 12:21am

    I am surprised that SEIU isn’t at the front door making the customers join the United Cigarette Rollers Union, shaking the customers down for a $10.00 per carton union dues.

    LIBERTEA

    Report Post »  
    • lodgerat
      Posted on November 22, 2011 at 12:56am

      You shouldn’t have given them the idea. You watch, some union slug is writing up the law right now and will pass it on to another slug in the government to have it in effect by the end of the year.

      Report Post » lodgerat  
  • dnewton
    Posted on November 22, 2011 at 12:19am

    My grandfather had a farm hand who smoked but did not like the price of factory made cigarettes. Grandpa hated smoking with a purple passion because he did not like fire and hay in close proximity plus his had Puritanical concepts of wasting money on mere pleasure. He proved to me that fun could be had cheaply and without inhaling. One day, the farm hand showed up with a pouch of tobacco and some rolling papers. It wasn’t long until Grandpa found the pouch laying on a ledge in the milking parlor. Grandpa always carried a razor sharp pocket knife and decided to cut some hair off of a cows tail, sort of low, where it sometimes made contact with the ground and other nasty things common to a farm. He diced the dark hair up into fine short segments and mixed them with the tobacco and reminded the farm hand where he left his smoking kit. Within a week, the farm hand was smoking the factory made cigarettes again. When Grandpa asked why he switch back to the more expensive smokes the farm hand just admitted that the rolled smokes just didn’t taste as good as the factory smokes. That was the second meanest thing I think he ever did. The only thing worse was expecting me not to laugh when this guy lit one up. If the government can make you put stuff in cigarettes for fire retardation, maybe Mayor Bloomberg could get them to put some cow hair in them?

    Report Post »  
    • dgktowntx
      Posted on November 22, 2011 at 5:03am

      there is something wrong with people like your grandpa….messing with food or drink or anything that is consumed into the body without that person knowing is just not exceptable and the old man should have his azs woped TX style…..

      Report Post » dgktowntx  
  • thefnshow
    Posted on November 22, 2011 at 12:08am

    here’s a thought….if you don’t charge $10 a pack then more people would actually buy more cigarettes than rolling there own…duh

    Report Post » thefnshow  
  • TeaBill
    Posted on November 21, 2011 at 11:48pm

    I don’t smoke, never have, but the constant nanny state and taxation will continue to destroy us.

    Report Post »  
    • jb.kibs
      Posted on November 21, 2011 at 11:57pm

      it is destroying us and is tyranny.

      Report Post »  
    • ChiefGeorge
      Posted on November 22, 2011 at 12:03am

      Pretty soon the Lib politicians and the USDA will be saying its bad for your health to be able to roll your own smokes without their oversight. This tax BS is just another example how they stick it to us. I wish everyone would just quit tomorrow and leave them high and dry for this tax revenue. They rely so much on it! If its not smokes its gasoline. Use less and they want to find a way to tax you for the mileage you drive annually. Cali is working on such legistlation. It never ends with these bureaucrats.

      Report Post » ChiefGeorge  
    • Alucard
      Posted on November 22, 2011 at 12:50am

      How DARE you not bow down and render onto Caesar! Off with your head!!!
      Seriously the amount of intrusion on our personal freedoms is outrageous. How can people not see the overreaching arm of this Big Government?

      Report Post »  
  • GoodStuff
    Posted on November 21, 2011 at 11:22pm

    Anyone that still smokes a cancer stick in this day and age is a moron. That being said, it’s a free country. You wanna kill yourself, go right ahead, I don’t care. Nanny gov’t sucks.

    Report Post »  
    • DirtyDeeds
      Posted on November 21, 2011 at 11:31pm

      Damn straight, I’ll light up a smoke, it is either get get killed by cancer in 50 years or by someone like you driving drunk after two wine coolers next weekend…Cheers :)

      Report Post » DirtyDeeds  
    • smokie
      Posted on November 22, 2011 at 1:38pm

      I understand your hatred of we “Untouchables”. You’ve been carefully taught.
      Watch closely, whatever the government want to accomplish, they will try first on smokers, because the masses have been taught over the years to hate us. If the gov succeeds in their plans against smokers, they widen their range. Look at how the perception against fatties has changed- from jolly to despicable. NY started with smokers, but now, because no one stood up to the gov, salt is now banned.
      We are your canaries in the coalmine. What happens to us, will happen to you.

      Report Post »  
  • oneeyedclay
    Posted on November 21, 2011 at 11:10pm

    Try buying smokes in Arizona. 9 bucks a pack ! ! New Yorkers have it lucky ! !

    Report Post »  
  • Workforit
    Posted on November 21, 2011 at 10:51pm

    My Dad is 85 years old and still kicking, no cancer, no other medical bs… He can‘t hear but I’m pretty sure that doesn’t have a damm thing to do with smoking. I would put any one of you up against him in an “all day” wood splitting contest. Granted he quit smoking when he was 45… I‘m his son and I’m 50… I still smoke, half a pack a day, maybe a whole pack when I start thinking about that useless blister of an ex-wife I will be tied to for the rest of my days… I won’t say any more, if you are divorced you know the drill… Only to well… My Dad still enjoys the smell of a cigarette, every time I light one up.

    My point being I enjoy smoking, My Mother smoked pretty much her entire adult life… Alzheimer’s took her … Not cancer, and If I was looking for a way to go see my maker you can bet your last dollar I‘d choose Cancer over Alzheimer’s… Any day…

    Nicotine is an amazingly addictive substance, not to mention having a drink in one hand and a smoke in the other… The “physical act” of having a smoke in the other hand … That addiction is almost as hard to beat as another “Party Favorite” of the 80′s… Think “white” and Al Pacino in Scar Face…

    You want to tax something worth while, Legal and worth while?… Tax Pepsi and Coke. I beat Cocaine twice, in the 80‘s and early 2000’s.. but my Pepsi addiction… I will never beat!

    Tax that addictive cancer causing Pepsi and the national debt will become a thing of the past in what, ab

    Report Post »  
    • Workforit
      Posted on November 21, 2011 at 11:25pm

      ab = about 15 minutes….

      Report Post »  
    • eric55
      Posted on November 21, 2011 at 11:30pm

      You make no sense your father stopped when he was 45 thats why hes still alive duh! if he’d continue smoking theres no way he would have made it to 85

      Report Post »  
    • Workforit
      Posted on November 22, 2011 at 12:52am

      I make plenty of sense… Every thing is acceptable in moderation. Moderation in my book is defined as follows… “It is all good until you effect any aspect of the lives of others…” The last thing I need is the government telling me what I can and cant do… or taxing my pleasures, especially when they only really effect me…Period. If you haven’t tried it, you haven’t lived; nor does your opinion count, one way or the other because you have no idea of what you speak …

      I hope your kids are as understanding as I am when you are 85… At this point he has two options … A government sponsored home (Where they take all of your money) or me supporting him… If you think raising children is tough you just wait until you buck up and take care of your parents… On their terms, not yours.

      My Dad would have loved to have passed the second after my Mom died… The last time he had any real freedom was the day before his heart surgery in 2008.. He quit smoking because it cost too much money.($1.25 a pack back in the day.) It didn’t have beans to do with his health. He has also been drinking his entire adult life, at this point I’ll make him a Vodka Martini and light his smoke if he so chose… He might enjoy the smell of my smoke but he doesn’t want his own… Tax Pepsi, Coke, Mountain Dew if you really want to raise a buck…The way things are going I’m not sure living to be 85+ is all that the government tells us it should be…. Think about that Eric55

      Report Post »  
    • phillipwgirard
      Posted on November 22, 2011 at 1:41am

      @WORKFORIT, GOD Bless Your Father ,,,Phil

      Report Post » phillipwgirard  
    • Workforit
      Posted on November 22, 2011 at 2:31am

      Thanks Phil, he already did… I’m here.

      A bold statement? Yep, but just think for a moment how many other places in the world I could be… And wanted to be… That will just have to wait.

      Man that God … He just creeps up when you least expect it … And Wham! He slaps you upside the head with a good dose of what is right… The funny thing, I’m not a believer, but the right thing is never the easiest… I owe him, he gave me a roof during the teen years… If I would have been him, I would have ended me… A number of times…

      Report Post »  
  • tmplarnite
    Posted on November 21, 2011 at 10:42pm

    It’s what this country was built on…the anti King george tea tax…smart entrepreneurs… free enterprise…then middle finger to the crooked politicians!

    Report Post »  
  • SgtB
    Posted on November 21, 2011 at 10:39pm

    If you don‘t need a nanny then please don’t tell the state to go pick on any other product to put a “sin” tax on. Either stand as one or don’t stand. I’m pretty sick of people who want one thing their way and to hell with everyone else. Statements like yours remind me of similar statements made by some of my family that receive gov’t assisted healthcare and rail against the mandate. You cannot be for one or the other. There is no usable middle ground between a capitalist society and socialism.

    What I am trying to say is that you should not say to the fed to stop taxing cigs and focus on alcohol. You should be saying that there should be no extra taxes for any group of legal products. And further, the gov’t has no authority to tell individuals what they can or cannot consume of their own free will. The illegal or criminal acts that they commit under the influence are however a matter in which the state and legal system can intervene and they should. But to charge a person of a crime in which there is no victim is tantamount to the “Minority Report” version of pre-crime.

    Report Post » SgtB  
  • RedFlyer
    Posted on November 21, 2011 at 10:39pm

    Sell the tubes and rent the machines. Tell the tax man to go stuff himself.

    Report Post »  
  • loriann12
    Posted on November 21, 2011 at 10:25pm

    If they’re selling loose tobacco, like pipe smokers use, it’s better for you than already made cigarettes. My dad switched to a pipe right before he quit (back in 1974). I used to get into his pouch just to smell it…told him years later and he said, “No wonder my pipe tobacco was going stale so fast.” Love the smell of pipe tobacco. I quit smoking back in 1993, so I didn’t know smokes cost so much!

    Report Post »  
  • freenj
    Posted on November 21, 2011 at 10:16pm

    Anyone have a pool running as to when the general tax paying population finally blows their cork? H*ll the first revolution started with probably less than 1% of what our tax burdens are today. Are we there yet, Uncle Sam? Inquiring minds want to know.

    Report Post »  
  • ThoreauHD
    Posted on November 21, 2011 at 10:07pm

    The government will ban the citizen from doing anything it can make money from doing worse.

    Report Post » ThoreauHD  
    • SgtB
      Posted on November 21, 2011 at 10:33pm

      They have consistently proven this fact since the “Supreme Court” ruled on Wickard v. Filburn. Apparently it is even illegal to grow your own crops for home use in rural America and it has been so for over half a century.

      Ron Paul, a real candidate for change and constitutional limiting of governmental powers or change through violent revolution as the next president continues us on the same path. Each individual can choose. As for me, I know my choice but I’m preparing for either outcome because I cannot trust the general public to make wise decisions. I may only be 26, but the liberals and neocons have jaded me nonetheless.

      Report Post » SgtB  
  • Berealalready
    Posted on November 21, 2011 at 10:07pm

    I don’t smoke….or drink (much), but I still think that smokers are being treated like crap. I actually hate smoke, but it‘s still someone’s right to smoke if they want. So, the question to smokers is….if you get lung cancer, do I have to pay for your treatment? In my world, you do what you want, and pay the consequences of your own actions. I agree with you the friggin nanny state is way out of control. Personally, I am working on killing myself with food, having a damn good time doing it, and don’t expect anyone else to pick up the tab.

    Report Post »  
  • M 4 Colt
    Posted on November 21, 2011 at 10:06pm

    It’s all about the money stupid, the government could care less about my health, they only want the revenue stream and i have never met a politician that ever wants to see the end to a source of money to line his pockets with, case in point nut job “can’t have any salt” mayor bloomburg, so don’t ever try to stand in their way or they will RUN YOU OVER using to cops, the court system or the mob to get what they want YOUR MONEY!!!

    Report Post »  
  • tnturner
    Posted on November 21, 2011 at 10:03pm

    Make them illegal or leave them the hell alone. Oh yea, I like my top o matic.

    Report Post » tnturner  
  • UlyssesP
    Posted on November 21, 2011 at 10:02pm

    “Farley also defended the city’s high taxes on cigarettes, saying that studies had shown that they are pressuring people into quitting, or not taking up the habit, and thereby saving lives.”
    He has a point there.
    Truth is the taxes (something like 65% of the price of a pack in FL) AND a picture of Obama with a cig in his mouth making the rounds on the internet disgusted me and finally compelled me to quit cold turkey a little over a year ago.

    Report Post » UlyssesP  
    • shazam3
      Posted on November 22, 2011 at 7:02pm

      Tired of being classified as a second class citizen?? Tired of being told you were like a homeless bum on the street? Did the “hottie” you met wave her hand at cigarette smoke and pronounce that it was second hand smoke and would kill her in 60 seconds? Or are you just tired of paying the state and the Feds your hard earned money. I guess I’ll go and burn some leaves outside, i would venture to guess that it weighs as much as 50,000 cigarettes, it just smells different……..

      Report Post »  
  • godhatesacoward
    Posted on November 21, 2011 at 9:52pm

    Without tobacco we would not be having this coversation! This countrry was founded on tobacco. For all of you Liberal douche bags, please do some reasearch, or just know that you are part of the largest scam in liberal history.

    Report Post » godhatesacoward  
  • SKI TOO
    Posted on November 21, 2011 at 9:24pm

    For less than the taxes on a single pack of cigarettes anyone can buy a rolling machine. The use of which can be mastered in minutes. So, when the SMOKE CLEARS ( pun intended ) is New York going to label smokers who roll their own as “ Manufacturers ”. What about those who move to smoking via a pipe.

    So many greedy fools trying to get rich off dictating their own beliefs. Still Fools !

    Report Post »  
  • confederacyofdunces
    Posted on November 21, 2011 at 9:23pm

    See, in the end it’s not about health or welfare of the people, it’s about the revenues the government makes off of Tobacco. Tobacco manufacturers make a pittance off sales, the Government makes a killing. You would think a product so dangerous would be banned, oh no! There’s too much money to be made by the Government and it kills off the excess population.

    Report Post »  
    • PAJoe
      Posted on November 21, 2011 at 10:10pm

      You are spot on with your comment. Without local, state and federal taxes added on would be about 65 cents a pack.

      Report Post »  
    • jcldwl
      Posted on November 22, 2011 at 6:00am

      You are right on point. I wish all smokers would just stop for a month. Don’t buy any cigarettes for a month and see how the governments that collect all the tax money react. We should also do the same with booze. Don’t buy any booze for a month and see what kind of reaction there would be. It would be fun to watch the government cry over that. Hey that would be a true Tea Party considering how unfailry and overtaxed those items are.

      Report Post » jcldwl  
  • elvisroy0000
    Posted on November 21, 2011 at 9:20pm

    this is not a tax loophole you socialist idiots http://elvisroy0000city.blogspot.com/ http://royschapel.blogspot.com/

    Report Post » elvisroy0000  
1 2

Sign In To Post Comments! Sign In

Sign Up For Our Newsletter!

Glenn Beck Radio

Listen to Glenn Beck 24/7 Listen Now
Restoring Love