Legislators Look to Plug Tax Loophole for “Roll-Your-Own” Cigarette Machines

A recently passed Senate bill would close a loophole that currently lets stores that provide “roll-your-own” cigarette machines avoid taxes and fees levied on cigarette manufacturers. The bill is backed by the tobacco industry and convenience store chains, The Wall Street Journal reports.

Customers buy loose tobacco, and pour it into the machine, which generally rolls 200 cigarettes in less than 10 minutes. Most customers use pipe tobacco, which has a much lower federal excise tax rate than cigarette tobacco–$2.8311 per pound, versus $24.78 per pound. The cigarettes can sell for half of what major brands cost, depending on the level of state taxes.

The stores have been gaining in popularity since 2009, when Congress raised the federal excise tax on a carton of 200 cigarettes from $3.90 to $10.066.

Similar bills have been signed by the governors of Virginia, South Dakota and Wyoming this month. About 20 other states are also considering such measures.

In 2010, the Alcohol and Tobacco Tax and Trade Bureau declared that retailers with roll-your-own machines are manufacturers. RYO Machines, the largest maker of the machines, secured a preliminary injunction in a federal court in Ohio; oral arguments are expected to begin in April.