The Tennessee Legislature has passed a bill to require roll-your-own tobacco shops and their customers to pay more in taxes, but they’re refusing to call the plan a tax increase.
The measure, HB1054/SB1738, would require owners of corner stores that offer roll-your-own cigarette services to pay a $500-per-machine licensing fee, pay the same tax per pack as pre-rolled cigarettes, and pay into a massive settlement between cigarette makers and the states. Lawmakers say they are concerned about loss of revenues and want the state’s tax policy to be fair.
The “crux of the argument” for this bill is that, although the roll-your-own cigarettes are nearly identical to prepackaged cigarettes, they are taxed at a much lower rate, meaning that they are sold for a much lower price, said Rep. Steve McDaniel, R-Parkers Crossroads, on the House floor, April 30.
“The conventional cigarettes are taxed under the agreement, the Federal MSA directory, the Attorney General’s directory, and created the escrow account and the payments – we get over $140 million a year, because of the lawsuit that was settled some time ago,” McDaniel said. “We could endanger, I believe, that agreement, where we’re getting that money into our state system, into our revenues.”
McDaniel was referring to a settlement reached in 1998 between the top four cigarette companies and the states. The companies were required to end certain marketing techniques and pay a minimum of $206 billion to the states over a 25-year period. The agreement also made the companies exempt from future private liability suits that might be brought against them in regards to harm caused by tobacco use.
The bill passed the House 68-22.
While the House bill passed with little-to-no discussion, it was a different story in the Senate.
“The dilemma we have as a state — and we’re not the only state that’s addressing this — is how do we treat these cigarettes that are manufactured, that are made in a machine in eight minutes, and you walk out of the store” said Sen. Jack Johnson, R-Franklin, sponsor of the bill. “They’re not paying the (Tobacco) Master Settlement Agreement fees, they’re not paying the $0.62 state tax, and they’re not paying federal tax on these cigarettes.”
Much of the debate on the Senate floor wasn’t regarding the regulation of commerce or revenue lost by the state, but about the length of time to give businesses to adapt and comply with the measure. The Senate settled on a compliance date of July 1, 2013.
Sen. Bill Ketron, R-Murfreesboro, said the state should be more aggressive and bring the money in starting in January of that year. His amendment failed.
“In the meantime, the state of Tennessee is losing a lot of revenue from taxes, as well as your other convenience stores in your district are losing business, because people are going to be driven to the location where they can get cheaper cigarettes,” Ketron said.
Ketron admitted to looking for competitive advantages when he himself ran a convenience store, including buying his own machine to produce ice himself. He said that store owners who have roll-your-own machines, which cost $30,000, have an unfair advantage.
“This is not a tax bill. All it’s doing is leveling the playing field. They can still sell these cigarettes cheaper than what your name-brand cigarettes will be sold for by the carton.”
Sen. Bo Watson, R-Hixson, compared this legislative issue to last year’s Amazon bill and recommended more time to allow the affected shop proprietors to comply.
“I think if we were truly advocates for small business, we would give them the same courtesy that we’ve given to large business and allow them more time to adapt,” Watson said.
The Senate passed the bill 26-5 on April 25.
The House held steady with Jan. 1, 2014 as the effective date for the bill, despite the Senate’s amendment changing the date. Following a conference committee between the chambers, they agreed upon yet another compromise, officially setting the effective date for Oct. 1, 2013.
The bill now travels to the governor for his signature.
U.S. Rep. Diane Black, R-Tenn., recently introduced a measure in Congress to label roll-your-own tobacco shops as manufacturers, according to the Wall Street Journal.