RYO cigarette machines evade taxes

On August 25, 2011

Smokers across America are cashing in on new Roll Your Own (RYO) cigarette machines that offer cheaper cigarettes.

The cigarette-rolling machines - distributed by RYO Machine Rental LLC of Girard, Ohio - avoid steep taxes on cigarettes by using pipe tobacco to fill cigarettes. The result is that a smoker can place tobacco into the machine's top and in a matter of minutes, a whole carton of cigarettes can be rolled perfectly and evenly for under $25, according to the St. Petersburg Times.

For those who don't smoke, a carton of Marlboro Lights (200 cigarettes) costs $53.89 plus $57.00 tax (More than $110) at a local 7-Eleven gas station, while the prices online can be as low as $20 without tax (despite clear illegal tax evasion).

For smokers, the savings are significant, but the public cost is high. The machines impede the ability of the state to fight smoking habits in young people by making cigarettes more financially available.

Moreover, the use of pipe tobacco in the machines is a legal loophole for tobacco shops to avoid taxes while distributing cigarettes. The RYO machines have attracted attention from Arkansas legislators seeking to ban them in the state. Act 836 of 2011, which was passed in April, bans the commercial cigarette rolling machines beginning Jan. 1. Critics of the loophole say rolling cigarettes in the store constitutes cigarette manufacturing, and as such, tobacco shops should have to pay the same taxes as larger cigarette manufacturers. While the loophole seems to violate the spirit of tobacco taxes, Phil Accordino, co-owner of RYO Machine Rental LLC, told Erin Toner of WUWM in Milwaukee, "You cannot confuse the two" manufacturing techniques because of production capacity.

Indeed, there is a significant difference in the scale of production. While the RYO cigarette rollers can produce 25 cigarettes per minute, an industrial cigarette manufacturing machine from Hauni Manufacturing can roll about 16,000 cigarettes per minute, according to hauni.com - or 640 times more. The machines from RYO are inferior to industrial machines by a wide margin and could never compete on an even playing field.

Despite the fast growth of RYO Machine Rental LLC, it seems the short-term advantage the company obtained will not last for long. Besides the Arkansas legislation, the PACT ACT prevents companies from shipping tobacco and other RYO products together. The act, which became effective June 29, 2010, is designed to clamp down on U.S. cigarette sales that avoid taxes - online and offline.

Yet, as the taxes increase, black market cigarette sales will continue to grow. While the RYO cigarette machines may disappear from tobacco shops across America in time, the unwillingness of American consumers to pay high taxes on cigarettes is not going away.

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