If you think the state Department of Revenue is worried that federal legislation recently signed into law that includes a provision to regulate roll-your-own businesses as manufacturers, which has prompted many retailers to cease roll-your-own operations, will impact the expected $12 million to $55 million per year that Washington is hoping to bring in from its just-enacted roll-your-own cigarette tax, think again.
The brief back story: In reaction to state legislation passed in Olympia last session designed to tax roll-your-own cigarettes the same way traditional cigarettes are taxed in our state, lawyers on both sides of the argument have been sparring. Supporters of the tax say it simply closes a loophole exploited by the roll-your-own cigarette industry. Those opposed to the tax say it was passed in violation of Tim Eyman's Initiative 1053, which requires a two-thirds majority vote for all tax hikes and new taxes. Lawsuits were filed, motions were made, and by the time the dust settled, the state tax took effect as planned on July 1. Last week (despite what you may have heard), plaintiffs sought dismissal of a lawsuit they'd brought attempting to block the tax on the basis it violated I-1053.
Trumping all of that, on July 6 President Obama signed a federal transportation bill into law that, among many other things, designates roll-your-own cigarette businesses as manufacturers, making it more difficult for businesses with roll-your-own cigarette machines to avoid federal taxes. The legislation, which requires roll-your-own cigarette businesses to apply for permits, package and label tobacco, and pay the required federal cigarette tax, is expected to bring in $100 million in new federal tax dollars. It also makes the recent squabbling at the state level essentially moot.
It's basic math. Washington's just-enacted law classifies roll-your-own cigarettes just like traditional cigarettes. The federal law made businesses that employ roll-your-own cigarette machines as manufacturers. Add the two elements together, and it means roll-your-own cigarettes will now cost essentially the same as traditional cigarettes.
According to a story from the Associated Press, that's been enough to make at least one roll-your-own cigarette machine company advise retailers with machines to shut down operations in the state.
Still, Gowrylow says, when it comes to the $12-$55 million expected to be raised through the state's roll-your-own cigarette tax, it should all come out in the wash.
"We think that what will happen is smokers will buy cigarettes the way they used to," says Gowrylow.
"It eliminates the price advantage [roll-your-own cigarette retailers] were realizing," Gowrylow says. "Therefore, we anticipate smokers will go someplace else to get their cigarettes."
Anyone counting on that estimated $12-$55 million a year better hope the Department of Revenue is right.