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Roll-your-own tobacco shops take advantage of cigarette tax loophole

Tony Broccone, 51, fills a carton of cigarettes Wednesday at Tobacco Road in Disston Plaza, St. Petersburg.

SCOTT KEELER | TIMES

Tony Broccone, 51, fills a carton of cigarettes Wednesday at Tobacco Road in Disston Plaza, St. Petersburg.

ST. PETERSBURG — Business is brisk at the dozen Tobacco Road shops in the Tampa Bay area, where delighted smokers hunch over buckets and collect half-priced cigarettes from whirring machines.

But are they buying cigarettes? Or are they simply renting the machines to make their own?

This is the distinction being argued in federal court, and Florida regulators are staying out of it until it's settled. The difference could mean lower costs for smokers, or millions of dollars in annual tax revenue for the state.

The debate begins with an Ohio company that manufactures large ATM-like Roll Your Own Filling Stations and sells them to retailers.

The retailers charge customers a fee to rent the machines and sell them empty filtered tubes and the tobacco that goes in them. Customers pour the tobacco into the top of a machine, press a few buttons, retrieve the deposited cigarettes and pack them into cartons themselves.

A carton of about 200 cigarettes costs roughly half of what a carton of name-brand cigarettes costs at the store because the self-rolled cigarettes don't carry the same hefty federal and state cigarette taxes. Retailers across Florida have purchased the $35,000 patented machines, cornering their respective markets on such shops.

Sam Bontempo, co-owner of 12 roll-your-own shops in Pasco, Pinellas, Hillsborough and Polk counties, said he's happy with how business has gone since opening the first store last year. Revenue from each pays for the next and he plans to open more.

"We were kind of low-key at first," Bontempo said. "And then we realized we weren't doing anything wrong."

Tony Broccone, 51, and his wife recently visited one of Bontempo's shops and filled two cartons of cigarettes at $24.80 each. A carton of cigarettes ordinarily costs up to $65 each, so the couple saves hundreds each month by rolling their own.

"They're just as good, they last longer, the flavor's the same," Broccone said.

Dorothy Kinney, 77, said the rolled cigarettes felt milder too. "I haven't had my cough since smoking these," she said.

The tobacco in the roll-your-own cigarettes is, in fact, different from commercial cigarettes. It is actually a coarsely ground pipe tobacco, which is taxed at a much lower rate than cigarette tobacco, also adding to the savings.

This irks traditional cigarette shop owners such as Salmen Mugnie, who owns Tobacco Road Etc. in Kenneth City (not to be confused with Bontempo's Tobacco Road shops). He said roll-your-own cigarettes hurt his business and mislead customers.

"They're telling them it's cigarettes but giving them pipe tobacco," Mugnie said. "At least tell them what they're getting up front."

Big Tobacco companies and state lawmakers have complained roll-your-own retailers are essentially selling customers cartons of cigarettes, yet they aren't being regulated or taxed the same as those who sell cartons of Marlboros or Kools.

Last September, the U.S. Treasury Department's Alcohol and Tobacco Tax and Trade Bureau ruled that retailers who allow consumers to use the machines to manufacture their own cigarettes should follow the same tax codes and permitting as the large industry-scale manufacturers. The ruling would essentially halt business at all roll-your-own shops until the proper permits were obtained, effectively shutting down the industry.

But some Ohio businesses, including the makers of the roll-your-own machines, challenged the ruling in federal court. A judge issued an injunction stopping the tobacco trade bureau from enforcing its ruling. The case is on appeal.

Arkansas prohibits the machines, and other states are considering whether to enforce their own versions of the federal tobacco trade ruling.

Florida's Division of Alcoholic Beverages and Tobacco regulates the sale of tobacco products, including loose tobacco, said spokeswoman Beth Frady. The state has no further plans to tax the roll-your-own cigarettes or require industry-scale permitting until the federal case is settled.

That could take years, said Bontempo, a 61-year-old retired environmental remediation specialist. And he believes the Ohio companies defending the roll-your-own businesses won't go down without a fight.

"If we do have to shut it down," he said, "I guess we could turn all these shops into convenience stores."

Emily Nipps can be reached at nipps@sptimes.com or (727) 893-8452.

Cigarettes by the numbers

$5.63: Average cost of pack of factory-brand

cigarettes

$1.34: State cigarette tax on a pack

$1.01: Federal cigarette tax on a pack

20: Average number of cigarettes in a pack

200: Average number of cigarettes in a carton

$50-60: Typical price of a carton of factory-brand cigarettes

$24.80: Price of roll-your-own cigarettes at

Tobacco Road

Roll-your-own tobacco shops take advantage of cigarette tax loophole 08/18/11 [Last modified: Thursday, August 18, 2011 11:15pm]
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