A Senate Finance Committee bill would change the way cigarettes from roll-your-own machines are taxed.

SETH WENIG/ASSOCIATED PRESS

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Loophole could go up in smoke

Commercial roll-your-own cigarette machines would be considered cigarette manufacturers

Date published: 1/26/2012

BY CHELYEN DAVIS

RICHMOND

The machines are located in retail establishments--one company, RYO Machine Rental, has machines in Virginia.

Customers would go into the store, buy the tobacco--sold and taxed as pipe tobacco--and buy the papers, filters and carton. They then would put the tobacco and other items into the machine and start it themselves, and the machine creates the cigarettes. Those cigarettes sell for about half the price of a commercial carton of cigarettes.

But the stores that have such machines aren't registered as cigarette manufacturers--they argue that they are not manufacturers--and they pay taxes on the tobacco as pipe tobacco, which is a lower tax than that on cigarette packs.

The bill, sponsored on the Senate side by Sen. John Watkins, R-Powhatan, would change that, declaring the store owners to be manufacturers of cigarettes and regulated accordingly.

"The end product would be a cigarette," Watkins told the committee yesterday, passing out to senators sample packs of regular, commercial Marlboros and the RYO equivalent. "This legislation just tries to provide for a level playing field."

John Rainey, representing Altria (which owns cigarette manufacturer Philip Morris) said the common conception of roll-your-own cigarettes involves a person sitting in their own home, hand-rolling cigarettes--not those made by a machine that can spit out a 200-cigarette carton in less than 10 minutes.

The retailers using the RYO machines, he said, are avoiding state and local taxes on cigarettes, as well as payments under the Master Settlement Agreement.

Lobbyists for RYO Machine Rental showed a video clip that compared the rate at which the machines make cigarettes to the rate at which Philip Morris makes them--about 20,000 cigarettes a minute, said lobbyist Bea Gonzalez.

"It's a very stark difference," she said.

She said retailers are paying all currently applicable taxes, and that federal law doesn't allow them to register as manufacturers. She said the Master Settlement Agreement--which was begun in 1998--shouldn't apply to retailers who have the machines.

Two store owners who have the machines in their stores said they're not trying to compete with the big cigarette makers. They said Watkins' bill would put them out of business, costing jobs and revenue in their businesses and those they deal with.