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State, Feds to Roll-Your-Own Cigarette Sellers: Drop Dead

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Tobacco Plus in Michigan Center

Earlier this year, Michigan Center businessman Keith Goodrich was faced with a decision: plunk down over $35,000 on a state-of-the-art cigarette rolling machine for his Tobacco “Plus” Store or focus instead on selling loose tobacco for customers to roll at home.
 
In the end, though he'd have had the Jackson-area in-store roll-your-own market to himself, Goodrich opted against the fancy machine. It turned out to be the right call.
 
“I did my homework,” said Goodrich, whose store opened in March. “When I called up the state Treasury Department, they said, ‘we’re going after [the machines].’ So I stayed away.”
 
Last week, in a display of aggressive lawmaking, first Michigan Governor Rick Snyder and then the U.S. Congress approved separate measures that have effectively turned the in-store roll-your-own machines, of which there are over 50 in Michigan and more than 2,000 nationwide, into very large, very expensive paperweights.
 
The new rules have delighted both big tobacco and health advocates, devastated roll-your-own store owners, infuriated their customers, and left others wondering whether a middle-ground could have been reached.
 
Of the 31 roll-your-own stores in Michigan —none of them in the Jackson area—at least half have already closed up shop since last Tuesday's bill signing, said Patrick Brazil, spokesman for the Roll-My-Own Coalition of Michigan and owner of That’s How We Roll, a tobacco shop in Lansing.
 
“The one that’s really getting screwed is the little guy,” said Brazil, noting that lobbyists for large tobacco makers pushed hard to get the laws passed. “It’s a farce.”
 
Tax Loophole
 
The crux of the case against roll-you-own cigarette stores, which sprouted across the country over the past two years as a cheaper alternative to premium cigarettes, was that they were sidestepping federal and state tobacco taxes.
 
Specifically, roll-your-own stores gained competitive advantage by selling pipe tobacco, which is taxed at a much lower rate than cigarette tobacco but differs only in its coarser cut. With the disparate tax rates, a customer could until last week walk into a roll-your-own store in Michigan and leave eight minutes later with 200 cigarettes for about $30, or half the cost of a typical carton of Marlboros.
 
The simplest way to close the loophole—raising the tax on pipe tobacco used by roll-your-own sellers to bring it in line with the cigarette tobacco tax—was taken in Washington state, where Governor Chris Gregoire signed such a bill into law in April. (The law was challenged by anti-tax advocates and a ruling by the Washington state Supreme Court is pending.)
 
“I would have loved it if they’d have just raised the taxes and allowed us to keep rolling,” said Brazil. “Could we have compromised at $10 per carton [in new taxes]? Absolutely.”
 
But in Michigan—and in an amendment slipped into the federal omnibus transportation bill, which was passed by Congress on Friday—a different approach was taken: labeling roll-your-own retailers as cigarette manufacturers.
 
Because cigarette manufacturers must both be situated in industrial zones and go through an exhaustive FDA approval process, such a designation amounts to a roll-your-own retailer death sentence.
 
Anger Boils Over
 
Let’s Roll Tobacco in Bay City is among the Michigan roll-you-own stores still clinging to life. A woman who answered the phone there Saturday asked not to be identified, but said her brother owns the store and another in Saginaw. She said eight of his 10 employees were laid off last week, and she was unsure of how much longer the stores will stay open.
 
“That was our moneymaker,” she said of the roll-your-own machines, adding that customers who have come into the store only to learn they’ve been mothballed are furious. “They say our government is communist, that we might as well live in Russia.”
 
Roll-your-own vendors say that because customers operate the machines—putting the tobacco in and pushing the buttons on their own—the stores are not cigarette manufacturers.
 
With that argument now having been lost, Brazil said he’s not going to shut his doors without a fight. He’s had to lay off one employee and reduce the hours of his remaining seven, and expects to lose money for at least the next six weeks.
 
But he’s already recalibrating his business model: He plans to sell as many at-home cigarette rollers as possible, and keep customers coming back for the tobacco.
 
“There’s going to be a national shortage of [at-home] rolling machines,” he said. “We ordered 288 rollers. That should last us a month.”

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duyentran607's picture

The simplest way to close the loophole—raising the tax on pipe tobacco used by roll-your-own sellers to bring it in line with the cigarette tobacco tax—was taken in Washington state, where Governor Chris Gregoire signed such a bill into law in April.james svlevin

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