National tobacco buying changes:
Type
March 2009 *
February 2012 **
% change
Pipe Tobacco
363,798 pounds
3,421,520 pounds
840%
Roll-Your-Own Tobacco
1,206,117 pounds
384,250
-68%
Large Cigars
649,551,245
776,529,792
20%
Small Cigars
312,066,256
82,635,128
-74%
* Month before new taxes required by the Children’s Health Insurance Program Reauthorization Act of 2009
** Most recent data available
Tax changes have boosted national pipe tobacco sales by 840 percent in the past three years, leading to calls for equalizing federal taxes for all tobacco products and creating a robust market for do-it-yourself cigarette-rolling machines.
The April 2009 tax changes caused more smokers to buy pipe tobacco for rolling cigarettes, which they call “sticks.” At the same time, the demand for now-heavily taxed “roll-your-own” tobacco plummeted.
To make those cigarettes, more smokers are using a machine developed and produced in the Youngstown area. A user inserts tobacco and cigarette tubes into the “RYO Filling Station” to avoid buying packaged cigarettes.
Tobacco taxes affect Ohio’s estimated 1.7 million smokers. In 2010, the Centers for Disease Control and Prevention ranked Ohio 35th nationally with an adult smoking rate of 20.1 percent.
The state’s 12.9 percent youth (ages 12-17) smoking rate is 46th in the U.S.
The Government Accountability Office, which recently released a report on the 2009 tax changes, suggests that the country follow Ohio’s method of equalizing taxes. In Ohio, all noncigarette tobacco products are taxed at 17 percent of the wholesale price, although the American Lung Association in Ohio has been asking lawmakers to significantly increase that rate.
The GAO said it would like to see RYO and pipe tobacco taxed at the same rate. Currently, RYO tobacco is federally taxed at $24.78 per pound, compared with pipe tobacco’s $2.83 per pound.
Meanwhile, critics of the RYO machine are asking for the machine-rolled cigarettes to be taxed for production, which would end their economic advantage. The machines have been controversial enough in the smoking world that multiple local shop owners who offer them declined to comment.
The change in buying patterns doesn’t have as strong of an effect on Ohio because of its flat tax rate on all non-cigarette tobacco products. However, local tobacco outlet operators said they have seen more customers drive to Pennsylvania and buy tobacco products in bulk because it is the only state that doesn’t tax snuff, chewing and smoking tobacco or large cigars.
It’s easy for tobacco companies to help customers avoid some taxes, tobacco enthusiasts said. According to the Alcohol and Tobacco Tax and Trade Bureau, little more is necessary than changes in packaging and labeling to change RYO tobacco to the lesser-taxed pipe tobacco.
“In pipe tobacco, you’re generally enjoying the aroma and some flavor,” said Jason Clyburn, manager at The Wharf tobacco shop in Beavercreek. “The roll-your-own, they have their own pipe cut, and basically it’s regular cigarette tobacco with a bigger, heavier, leafy cut, the way a traditional pipe tobacco has. That’s how they’re skating around the (RYO taxes).”
Using pipe tobacco
In March 2009, the month before the Children’s Health Insurance Program Reauthorization Act of 2009 tax increases went into effect, both RYO and pipe tobacco were taxed at $1.0969 per pound. After the changes, RYO taxes increased almost 2,200 percent, while pipe tobacco taxes increased just 158 percent.
The price change started a dramatic shift in the tobacco that smokers use to make their own cigarettes. RYO tobacco once outpaced pipe tobacco 3.3 to 1; but in February buyers purchased nearly nine times more pipe tobacco than RYO tobacco, about 3.4 million pounds of it.
The changes in buying habits have led some, including the GAO, to call for equalizing federal taxes on pipe and RYO tobacco. The American Lung Association in Ohio has also asked state legislators to increase the state taxes on noncigarette tobacco products to 55 percent of the wholesale price (from the current 17 percent), which it says would match the cigarette taxing level.
“Basically, from a public health perspective, it’s bad because instead of stopping using tobacco or smoking, people are just switching to a cheaper product,” said Shelly Kiser, director of advocacy for the American Lung Association of the Midland States.
Using the machines
Around the time the new tax laws took effect, a company in Girard, Ohio, called RYO Machines began distributing devices meant to help customers quickly roll their own cigarettes. In literature, the company said the machines, called RYO Filling Stations, can “roll 200 smokes in your store in 8 minutes.”
Instead of buying a carton of 200 cigarettes for about $45 to $75, customers can buy tobacco and cigarette tubes separately then rent the RYO Filling Stations for about $10 and make about 200 “sticks” for a total cost of about $24.
Mike Joo, who owns four Smoke Stop locations in the Dayton area, including stores in Miamisburg and Franklin that offer the machine, said most of his stores’ customers who use the machines were making their own cigarettes anyway. They’ve just found a way to do it faster and cheaper, he said.
“Times are tough right now,” Joo said. “In my personal opinion, the silliest thing they could do is raise taxes on something when the economy is like it is.”
Contact this reporter at (937) 225-7389.
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