Bills target Virginia's roll-your-own cigarette shops

RICHMOND

Every week or so, John Solomon heads to a Virginia Beach tobacco shop to get a case of 200 cigarettes from an automatic rolling machine.

He prefers rolling his own smokes, and he pays about $24 per case.

Yet if one tobacco company gets its way this year, the price could rise considerably.

As roll-your-own machines take root in Virginia, they are the focus of a legislative debate over how merchants with those dispensers are classified and taxed.

The devices stuff loose tobacco into cigarette tubes and spit out a case's worth in about 10 minutes. They're in fewer than a dozen retail locations statewide, several of them in Hampton Roads.

Pushing for a policy change is Altria, the parent company of Philip Morris USA. The nation's largest cigarette maker wants roll-your-own retailers to pay the same taxes as cigarette manufacturers and wholesalers.

Company officials and their lobbyists argue the rolling machines exploit ambiguity in the law to avoid some taxes.

But roll-your-own representatives say the tax argument is a smokescreen for the company's true goal: extinguishing competitors.

Included in the retail price of a pack of cigarettes are federal ($1.01) and state (30 cents) tobacco taxes, plus the state sales tax and any local cigarette levies that may apply.

Every South Hampton Roads city has one, with Norfolk's 75-cent fee for a pack of 20 cigarettes the highest.

Rather than paying the comparable rate for loose tobacco, however, industry officials claim roll-your-own retailers label their wares as pipe tobacco that is taxed at a much lower rate.

What's more, they say machine proprietors don't affix health warning labels to their products, use fire-safe paper, or pay into a tobacco master settlement fund for recovery of smoking-related health care costs.

Lobbyists for roll-your-own merchants insist they pay the appropriate taxes but aren't cigarette makers and shouldn't be treated as such.

Those retailers are in a different category than tobacco manufacturers, said Bea Gonzalez, a lobbyist for some roll-your-own stores and a manufacturer of the machines.

This year, Altria-backed bills have been filed to classify roll-your-own operations as cigarette manufacturers.

"There needs to be equity with regards to taxation," said Powhatan County Republican Sen. John Watkins, whose SB74 proposal is drawn to capture taxes from machines operated in retail establishments.

As written, it doesn't appear to cover private individuals who roll their own cigarettes using in-home machines.

Eddie Siu, the proprietor of several Tobacco Direct stores in Virginia, insists shops like his aren't cigarette manufacturers and shouldn't be lumped in that category.

"We are not making it for the customers," Siu said. "They are doing that for themselves."

He said his stores rent use of the machines to customers who operate them after purchasing loose tobacco and empty cartridges.

That description is in line with legal advice Attorney General Ken Cuccinelli issued last year, when he concluded tobacco retailers with the machines aren't manufacturers under current law.

Virginia is the latest front in the roll-your-own debate, which has inspired federal litigation and efforts in several other states to treat retailers with the machines as manufacturers.

Solomon sees the current legislation as an attempt to snuff out a time-honored tradition cherished by a certain breed of smokers.

"Making their own cigarettes - people take pride in that," he said.

Pilot writers Aaron Applegate, Dave Forster, Harry Minium, Marjon Rostami and Jeff Sheler contributed to this report.

Julian Walker, 804-697-1564, julian.walker@pilotonline.com