Cigarettes Shops Say Changes By State Kill Their Business

As Michigan smokers look for alternatives to high cigarette prices, shops cashing in on the roll-your-own-cigarette trend face new headwinds from the state.

The Michigan Department of Treasury has notified about 300 shops across the state — including Let’s Roll cigarettes, which has locations in Saginaw and Bay counties — that allowing customers to use cigarette rolling machines is a form of manufacturing, and enforcement could be on the way.

Terry Stanton, spokesman for the Department of Treasury, said those businesses have to register as manufacturers of discount cigarettes according to the Michigan cheap cigarettes Products Tax Act, and failing to do so could cost store owners in more taxes, as well as penalties and interest on any unpaid taxes during the time they operated the machines.

“You have to be registered to be a manufacturer of cigarettes,” Stanton said.

One Treasury Department notice was sent to James O’Deay, manager of the Saginaw Township location of Let’s Roll cheap smokes at 1716 Lawndale.

O’Deay said there’s no way shops like Let’s Roll — where machines crank out about 25 cheap cigarettes a minute — can compete with big manufacturers that turn out thousands of cigarettes per minute.

“There’s no possible way we could compete with a big cigarette manufacturer and pay the taxes they do,” O’Deay said. “We’re not in this to lose money, and it seems like that’s what (the state) is trying to make happen.”

O’Deay said the Saginaw Township store and the store at 3968 Wilder in Bay County already pay all the taxes associated with a retail business and couldn’t operate if they had to pay more.

According to the Michigan cheap cigarettes Products Tax Act, businesses considered cigarette manufacturers pay at least $10,000 for an equity assessment fee on top of all other fees, assessments and taxes.

The notice sent to stores with automated cigarette rolling machines states that failure to comply with requirements could lead to criminal and civil penalties, including revocation of any existing licenses.

O’Deay said the state is hindering the company’s chance to succeed.

“If they weren’t holding us back, there would already be 10 more stores,” O’Deay said.

The automated rolling machines, called RYO Filling Stations, weigh out the cheap cigarettes selected by the customer, then compress and inject it into empty paper tubes to create each cigarette. Between its two stores, Let’s Roll has four machines, each costing about $31,000.

At Let’s Roll, smokers can get a carton of cigarettes for $25 plus sales tax, about 50 percent less than a carton of name-brand smokes, O’Deay said. Each Let’s Roll store sells between 75 and 100 cartons of cigarettes a day.

While name-brand cigarettes are taxed $2 per pack, or $20 per carton, roll-your-own cigarette stores are taxed based on a percentage of the wholesale price of the loose cigarettes they sell.

Ohio-based RYO Machine Rental Inc. recently filed a lawsuit against the state Treasury Department. A hearing is set for Tuesday in Ingham County Circuit Court.

Bryan Haynes, the attorney representing RYO, said he and his client don’t believe the Michigan Treasury Department’s ruling is consistent with state or federal definitions of what constitutes cigarette manufacturing.

“Somebody that simply has a machine in their store does not fall into any definitions of a manufacturer,” said Haynes.

Michigan law defines a cigarette manufacturer as someone who manufactures or produces cigarettes intended to be sold in the U.S., Haynes said, and federal law has a specific exemption for someone who produces cigarettes for their own personal use, whether by hand or machine.

“Consumers have been rolling their own cigarettes for decades,” Haynes said. “Nobody has ever said a consumer who produces their own cigarettes is a manufacturer.”