Posted on 06/30/2012 1:52:33 PM PDT by Drango
Efforts to postpone state cigarette taxes for roll-your-own cigarettes have failed.
Smokers cannot legally buy roll-your-own cigarettes unless the carton has a state tax stamp, starting Sunday.
The Washington State Supreme Court issued a stay on the Franklin County Superior Court preliminary injunction Friday.
And Dana Henne of Pasco, a roll-your-own cigarette consumer; Gary Alexander of Sammamish, owner of 1/2 Price Smokes stores in Tacoma and Kennewick; and RYO Machine LLC, an Ohio-based manufacturer with about 2,000 of the machines nationwide, did not post the $200,000 bond or security required for the preliminary injunction to go into effect.
If tax collection didn't start Sunday, the state could lose between $32,000 and $150,000 per day in cigarette taxes that the Washington Department of Revenue and the state Liquor Control Board say "is already owed by consumers who are currently simply evading the tax," according to court documents.
Right now, smokers don't have to pay state taxes when they use a machine that fills empty cigarette tubes with loose-leaf tobacco. The "RYO Filling Station" is in 65 stores across the state and is operated by consumers, similar to an automatic teller machine.
A carton of cigarettes from a cigarette-making machine currently averages about $34.50 per carton, while a prepackaged carton of stamped cigarettes costs an average of $70. The $30.25 per carton, or $3.025 per pack cigarette tax, is not included for roll-your-own cigarettes, giving those stores a price advantage.
But a new law signed by Gov. Chris Gregoire that goes into effect Sunday will require taxes be paid by the retailer and the purchaser for each cigarette filled.
Taxes already are paid on the loose tobacco and the tubes, and the lawsuit filed by Henne, 1/2 Price Smokes and RYO Machine claims paying additional taxes on the finished cigarettes is unwarranted and excessive. They also say the Washington Constitution and state law were violated when Gregoire approved the bill because it did not receive the two-thirds vote of the Legislature that Initiative 1053 requires for new taxes.
Henne, 1/2 Price Smokes and RYO Machine filed court documents Friday, explaining that they weren't paying the bond because Congress was considering a law related to taxing and regulating roll-your-own machines that could make the state law issues moot.
Later Friday, Congress passed a transportation package that defined roll-your-own shops as cigarette manufacturers.
Classifying these stores as cigarette manufacturers will take effect with the president's signature, the Tacoma News Tribune reported.
"To comply with that definition you have to seal, you have to package, you have to have environmental permits, you have to list ingredients," Bea Gonzalez, spokeswoman for RYO Machine, told the News Tribune. "It would effectively shut down all the machines."
But the Washington Supreme Court decided to approve a temporary stay anyway because Henne, Alexander and RYO Machine said they were reserving the right to post the bond at any time.
The state argues that the new law is a way to effectively enforce the existing tax on cigarettes.
"Consumers like Ms. Henne have always been personally liable for the cigarette tax on the unstamped cigarettes they possess, handle or consume in Washington," the state said in court documents. "To the extent Ms. Henne is not voluntarily reporting and paying the cigarette tax, she is evading the existing tax."
Alexander said in court documents that the new law will force him to charge his customers more, which could cause him to lose most of his customers and put him out of business.
The state countered, saying, "1/2 Price Smokes has no entitlement to a business model that relies on evasion of the cigarette tax by its customers and undercuts the prices of law-abiding small businesses like groceries and convenience stores," according to court documents.
The new law means roll-your-own retailers need a new license from the state to buy tax stamps, said Mike Gowrylow, spokesman for the state Department of Revenue. The businesses already should have a cigarette retailer license.
So far, 26 applications have been received for the stamps and are in various stages of approval, Gowrylow said. Only one operator had purchased any cigarette tax stamps as of Friday.
"We will work to get it to them as soon as possible," he said.
Roll-your-own cigarettes can not be legally made or sold without the stamps starting Sunday, he said.
The temporary stay lasts until July 10, when the Supreme Court will consider a more permanent stay.
Bummer
We just had another “bump” in taxes on cigs last week.
Classifying these stores as cigarette manufacturers will take effect with the president's signature,
Ouch.
Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it....President Ronald Reagan
I thought “Roll-your-own” meant a can of Prince Albert and a folder of Zig-Zag.
Forgot to mention Bull Durham.
Let’s be honest and admit this was an example of big tobacco spanking the little guy (RYO) that was eating into their profit margin.
As members of Congress hailed the transportation bill that passed on Friday as an engine for job growth, several local business owners said it could destroy them and put thousands out of work.
An amendment in the transportation bill expands the definition of a tobacco manufacturer to include businesses that operate roll-your-own cigarette machines. It requires the businesses to get manufacturing permits, place health warnings on packs and pay excise taxes on the cigarettes their machines make.
Local business owners said they must stop using their machines by midnight tonight, when the legislation is expected to take effect. President Obama had yet to sign it into law as of late Friday.
It was not clear if Obama’s signature on a one week, temporary measure would halt use of the machines.
“As of right now, we’re not putting in any more orders for tobacco,” said Andrew Serwatka, 22, whose family owns Steel Town Tobacco in West View. “If this is permanent, we’ll probably just close our doors.”
Roll-your-own machines have grown in popularity in recent years. Smokers can churn out the equivalent of a carton of cigarettes in about 10 minutes. It typically costs about $25 to pay for the tobacco, cigarette papers and use of a rolling machine. A carton of manufactured brand-name cigarettes costs at least twice as much.
About 20 stores in Allegheny County have roll-your-own machines, which are almost the size of a refrigerator and can retail for more than $30,000. Several dozen more stores are scattered across the rest of Western Pennsylvania.
“I guess I can use it as a paperweight,” Roy Albert, owner of Tobacco Road of Bethel Park said when asked what he plans to do with his machines.
Albert said he notified eight employees that they are being laid off effective midnight today.
Sharon Kinjerski, owner of Roll With It Tobacco in Ambridge, laid off five employees. She plans to keep her store open as a one-woman operation at least until her store lease expires late this year. Then she’s not sure what she will do. She’ll still owe money on her $32,000 rolling machine, manufactured by RYO Machine LLC of Girard, Ohio.
RYO has more than 2,000 rolling machines in more than 1,400 stores in the country. Company spokeswoman Bea Gonzalez estimated “several thousand” people work in the stores.
Gonzalez said roll-your-own businesses should not be classified as manufacturers because customers make their own smokes.
She added that the small business would not be able to meet all of the complex rules needed to obtain a manufacturing permit.
Roll-your-own businesses have been challenged in many states, with lawmakers accusing them of skirting the federal cigarette tax of $1.01 per pack.
“We’ve been winning in most states,” Gonzalez said, noting that 11 states have passed legislation restricting the machines in one way or another.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said he sponsored the measure to close the tax “loophole” and generate $94 million for a rural education program.
His office did not return a call seeking comment.
“We’re trying to avoid closing, not taxation,” said Josh Egal, owner of the Smoke Stack, with stores in Moon and Imperial. “We’re more than willing to pay.”
The measure did not surprise Daniel Jacobs, a co-owner of the Rolling Express chain that has outlets in Cranberry, Chicora and Warren.
“The middle class is always getting taxed, and this is another example. (The government is) missing tax dollars because the machines are saving people money,” Jacobs said.
He said he and his partners are weighing their options.
“Maybe we’ll give it a month or two to see how consumers react and what direction they are going to go,” Jacobs said. “Hopefully they will stay with us and roll their own cigarettes at home.”
It’s about time to start growing your own tobacco....FUFEDGOV
All the smokers should quit and force them to raise taxes on the non smokers too
I agree...
Quit? What are you some kind of genius? :snort////
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