Clarifies the definition of cigaretes to include roll-your-own cigarettes produced at a retail establishment

BILL NUMBER:S6476B

Title of bill

An act to amend the tax law and the executive law, in relation to roll-your-own cigarette machines

Purpose or general idea of bill

Provides that a retail establishment with a roll-your-own tobacco machine shall be deemed a tobacco product manufacturer and the resulting product, a cigarette.

Summary of specific provisions

Section 1 would amend subdivision 1 of section 470 of the tax law.

Section 2 would amend the tax law by adding a new section 473-c.

Section 3 would amend paragraph a of subdivision 1 of section 156-c of the executive law.

Section 4 sets the effective date.

Justification

New York State has made eradicating tobacco use a top priority in recent years. The State has gone about this in various ways, both raising the cost of the habit as well as raising awareness of the long term health risks smoking tobacco presents smokers.

This new form of Roll Your Own (RYO) cigarettes is nothing more than an attempt to skirt both State and Federal taxes placed on the exact same product sold by registered manufacturers. The tobacco used for these machines is marketed as "pipe tobacco" which is currently taxed at a dramatically lower rate than cigarette and cigar tobacco. In April 2009 Congress increased the federal excise tax on RYO tobacco to $23.68 per pound. Pipe tobacco increased at a much lower rate to $1.73 per pound. New York is losing a significant amount in cigarette taxes as consumers are paying approximately $6.64 in state excise and sales tax per carton for RYO cigarettes compared to $46.43 per carton on a regular carton of cigarettes.

The United States Department of the Treasury and the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued a ruling, TTB Ruling No. 2010-4 that agreed that these retailers were in fact manufacturers of cigarettes and should be treated as such. That ruling has been challenged in the courts and is currently pending in the U.S. District Court for the Northern District of Ohio. In the meantime over 13 states have already dealt with this issue by regulatory changes and/or proposed legislation to correct what is essentially a tax loophole created by this industry.

The City of New York in the past year has successfully sued companies evading the city's own tax on cigarettes. This bill would correct this problem state-wide.

Furthermore, the creators of these machines and the retailers who make them available to consumers blatantly advertise that these cigarettes produced by the RYO machines do not use fire safe cigarette paper as

mandated by laws. This bill would require compliance with existing state law and ensure a safe product is being sold to consumers.

Prior legislative history

This is a new Bill.

Fiscal implications for state and local governments

Currently the state is losing a total of $39.79 in state excise and sales taxes per carton of Roll Your own cigarettes sold; this bill will help the state recover this lost revenue.

Effective date

This act shall take effect on the ninetieth day after becoming law.