Business and Economy NewsTracker Tax and Budget

RYO Shop Operators Claim Victimization by Gov’t, Big Tobacco

Tennessee tobacco farmers will see taxes on their products rise because of legislation passed this year by the General Assembly, mirrored by a provision in the federal highway bill passed in July.

Although the highway bill has been touted by Washington politicians as supporting or creating around a million jobs, the provision taxing roll-your-own tobacco shops as manufacturers could put an end to an entire industry.

“It’s definitely a major body blow, a knockout punch if you will,” said Mark Griffey, one of the proprietors of Smokes-4-Less in the Knoxville area. Griffey says he shut down two of his three stores and laid off nine of his 10 employees after the federal bill was signed. “So, for all intents and purposes, if we don’t get some kind of injunction or antitrust suit, or something, we’re dead.”

The federal bill raises taxes on pipe tobacco to the same rates as cigarette tobacco and requires that roll-your-own shops be licensed as manufacturers in order to run the machines, which cost over $30,000 apiece — an investment businesses say now looks to be a money loser.

The state legislation sought to “level the playing field” by requiring the roll-your-own shops to register with the state to ensure that they were using the proper tobacco, paying the proper taxes on the tobacco, and paying into the Master Settlement fund, said Senate bill sponsor Jack Johnson, R-Franklin. The fund was set up after a 1998 settlement between the top four cigarette companies and the states, which required payments from the companies over a 25-year period.

“As I understand it, the federal law is pretty much going to put them out of business,” said Johnson, who, in the interest of full disclosure, admitted during the legislative session that his wife operates a convenience store. “That was not our intention with what we passed at the state level, but we did feel like it was necessary to level the playing field a little bit.”

Voting against the measure was Rep. Frank Niceley, R-Knoxville, who says it will work a hardship on farmers.

“It was just a tax on Tennessee farmers, and I‘ve never voted to tax Tennessee farmers,” said Niceley. “And I’m probably not going to be starting.”

Business owners like Griffey say the bills are a thinly-veiled effort by government and big business to butt roll-your-own operations out of the market. Although the state measure would have been crippling enough, it at least allowed them time to adapt, Griffey said. But the enaction of the federal bill was instantaneous.

“They started talking about it at the end of June, and then July 5th or 6th, Obama signed the thing, and it’s instant,” said Griffey.

Nationwide, there are about 1,000 stores with roll-your-own machines from RYO Machines, a leading manufacturer, RYO told the Huffington Post in July.

Griffey said he feels that much of the pressure on legislators to level the playing field seems to have come from lobbyists for larger tobacco companies and convenience stores, industries which were negatively affected by the roll-your-own shops’ ability to sell tobacco at a lower tax rate. This sentiment is one that Niceley shares.

“They call these machines manufacturers, they can make 200 in about 10-12 minutes, with the customer doing it themselves,” Griffey said. “The way they make them, they make 20,000 in a minute. It’s just the big guy snuffing out the little guy.”

Tennessee Republican Congresswoman Diane Black also sponsored a measure to raise the tax rates on roll-your-own shops, though it was not her measure that ultimately passed.

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