ROLL-YOUR-OWN SMOKE SHOPS SUED OVER TAXES
November 21, 2011
Thanks to a tax loophole in smoking policies, cigarette addicts can roll their own carton worth of cigarettes for under $40 at cigarette shops in New York and several other states.
In New York City where taxes alone come up to $5.85 per pack, it is the most expensive place to smoke in the United States and many smokers take advantage of this loophole.
Island Smokes, a cigarette shop in Chinatown is one of the growing number of shops around the country that have come under fire over their use of cigarette rolling machines and can package loose tobacco into rolling papers, sometimes in just a few minutes. 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. Many smoke shops sell loose 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 also being sold without local tax stamps, which in New York include a $1.50 city tax and a $4.35 state tax.
New York City’s legal department filed a lawsuit against Island Smokes on November 14, disputing that the company’s Manhattan store and another on Staten Island are engaging in tax evasion. The Suit argued that every package of cigarettes sold in the state 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.
“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.
Mayor Michael Bloomberg, who has advocated for aggressive legal action against cigarette sellers who avoid taxes, officially announced the lawsuit at a news conference this past Monday, November 21.
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.
Jonathan Behrins, a lawyer for Island Smokes claims 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 stating, “Claiming that this is healthier is a second scam … it’s totally false. 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.
To read more about roll-your-own cigarette tax loopholes, click here.
