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Shops that provide roll-your-own cigarette machines to allow customers to create a low-priced product are facing legislation that could cause revenues to dwindle and impact hundreds of jobs in Ohio.
The loose tobacco leaf used for roll-your-own cigarettes is considered produce and not subject to federal taxes. However, members of Congress have introduced legislation to declare such shops manufacturers, thereby subjecting them to the same taxes and regulations as the cigarette industry.
Owners of businesses that offer roll-your-own machines for customer use say the bill’s passage would adversely affect their bottom line by more than doubling the price of their product.
Matt McCune, co-owner of M&M Tobacco on Roosevelt Boulevard in Middletown, said the proposed legislation is unfair to both business owners and consumers.
“We’re not manufacturing cigarettes,” he said. “The taxes that are saved, we pass on (that savings) to the consumer. That’s why approximately 200 smokes only costs about $22 instead of more than $50 (for name-brand cigarettes).”
Ken Rickabaugh, co-owner and operator of Cheap Tobacco on Main Street in Hamilton, said it is “completely unfair” for legislators and major tobacco companies to push small business owners such as himself out of the market.
“It’s just the little people who are going to be hurt by this,” Rickabaugh said.
Meanwhile, the owner of the largest manufacturer of the roll-your-own machines said the result of the legislation’s passage would be the loss of at least 400 jobs, 32 of them from his company and the remainder from 25 Ohio companies that supply parts.
Legislators said the machines generate a profit via an unintended tax loophole.
In early March, Rep. Diane Black, R-Tenn., introduced House Resolution 4134, a bill amending the definition of a tobacco manufacturer to include “any person who for commercial purposes makes available for consumer use a machine capable of producing tobacco products.”
In addition, the Secure Rural Schools amendment sponsored by Sen. Max Baucus, D-Mont., and added to a U.S. Senate transportation bill would categorize retailers providing roll-your-own machines to customers as mainstream cigarette manufacturers for federal cigarette tax purposes. If passed, the bill would provide $97 million to road projects over the course of 10 years.
“The Secure Rural Schools amendment supports jobs in Montana and across the country, as well as education and important county road projects,” according to a statement from Baucus, who chairs the Senate Finance Committee. “The amendment preserves this critical funding for local communities by closing a loophole that tobacco companies were using to avoid taxes.”
If legislation requires small business owners to pay the full amount of taxes on roll-your-own cigarettes and pass the cost to lower- or middle-income customers, the consequences would be dire, McCune said.
“We’d be out of business,” he said. “Nobody’s going to buy their own carton of roll-your-own for $50 when they can buy regular cigarettes for $50.”
A customer using a roll-your-own machine can produce 200 cigarettes in about eight minutes. Factor in loading the tobacco into the machine and cleaning up afterward and it is a 15-minute process.
That speed and efficiency is what continues to draw customers to Cheap Tobacco in Hamilton since it opened 16 months ago, Rickabaugh said.
“A good percentage of revenues come from tobacco sales related to roll-it-yourself smokes,” he said. That means if either piece of legislation passes, at least one position at the store would be eliminated, Rickabaugh said.
“We’d have to analyze it and see if it’s still worth it to stay in business, to stay open,” he said.
Lobbying for the legislation are major tobacco companies such as Altria Group Inc., which is the parent company of Philip Morris USA, the country’s largest cigarette manufacturer.
“Philip Morris USA believes that the businesses that operate commercial RYO machines are cigarette manufacturers and should make tax payments, be regulated by the FDA, and make state settlement payments just like other cigarette manufacturers,” said spokesman David Sutton.
Phil Accordino, the owner of RYO Machines near Youngstown, said the agenda of Philip Morris is “to control all that is nicotine.”
“The transportation bill was a very, very dastardly way to come at us with attaching this type of an amendment to the bill, a bill that’s very necessary for Congress to pass, as far as the road projects,” he said.
“Everyone understands how backhanded this was, but that’s the way they play.”
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