The increase in cigarette taxes has led some Iowans to roll their own smokes to take advantage of lower taxes on loose tobacco. Some tobacco shops in the state took it another step and purchased machines that can roll a carton of cigarettes in their shop while the customer waits.
But the Iowa Department of Revenue says the cigarette rollers are vending machines and is pushing a measure to increase the tax on the store-rolled smokes. “The departments position is that this is a form of tax evasion and we want to address that,” according to the department’s lobbyist, Victoria Daniels.
The big tobacco cigarette manufacturers, distributors, and retailers have jumped into the discussion as they fear the competition from tobacco shops and are backing the bill to raise the taxes on the RYO, or Roll You Own, machine cigarettes.
Tobacco shop lobbyist, Frank Chido, says the bill is not fair to smokers. “They’re buying the tobacco, they’re paying the required tax, but because they’re dumping it into the machine and its happening at that location, the state wants to tax them again even though they could, like they have for many years, walk out the door and do it at home. Tax evasion. That’s interesting,” Chido says.
Chido says the tobacco shops are “mom and pop stores” that pay about $35,000 for the machines that roll a carton of cigarettes for about half the cost of pre-packaged smokes. He says if customers lose the big tax break, the stores will go under.
Senator Pam Jochum, a Democrat from Dubuque, is managing the bill, and disagrees with Chido’s characterization of the tobacco retailers. “The proponents of roll your own machines continue to say these are mom and pop shops in Iowa. No they’re not, ” Jochum says laughing. : They’re shops that are owned by out of state people.”
Jochum says she’s backing tax fairness, not big tobacco. The tobacco tax change is buried in a bill full of other technical tax law changes — which has made it subject to less scrutiny. Jochum says maybe that’s okay since there is an urgency to pass the bill as the number of RYO machines has continued to increase.
“And we believed if we waited until the legislature reconvenes in January, there could be hundreds ’em across the state…they multiply like rabbits. And the more there are the harder it is to actually get rid of them,” Jochum explains. A few weeks ago there were three roll your own machines in the state, in Marion, Dubuque, and Burlington.
Now there are two in Dubuque, one in Davenport, and six more on order. Some smoke shop owners say they’re waiting to see what happens with the tax dispute before they invest in a machine.
Iowa is one of several states objecting to the loss of tax revenue. The state of New York has filed a federal suit over roll your own cigarettes.