Relabeled Roll-Your-Own-Tobacco Costing Feds, States $1.3 Billion in Lost Revenues

 By JANICE PODSADA, jpodsada@courant.comThe Hartford Courant

Tobacco manufacturers that re-label roll-your-own cigarette tobacco as pipe tobacco are cheating federal and state authorities out of an estimated $1.3 billion in lost state and federal tax revenues, according to a report released Wednesday by the Centers for Disease Control and Prevention.

Last month, the Government Accountability Office found that cases of roll-your-own tobacco were being sold in packages labeled as pipe tobacco. The federal excise tax on loose tobacco used for roll-your-own cigarettes is $22 per pound higher than the excise tax on pipe tobacco.

According to the report, 45 million pounds of this mis-labeled tobacco has been sold from April 2009 to August 2011, lowering state and federal tax revenues by more than $1.3 billion.


Connecticut’s revenue loss is estimated at more than $3.1 million. About a dozen roll-your-own tobacco shops have opened around the state in the past two years.

U.S. Sen. Richard Blumenthal, who led a multistate lawsuit against cigarette companies years ago as state attorney general, joined a group of senators Wednesday who condemned the practice of re-labeling loose tobacco. They expressed concern that it reduces the amount of federal taxes collected on roll-your-own tobacco, a portion of which would otherwise be used to support programs to curtail tobacco use.

“Tobacco manufacturers have once again found a way to skirt the law in order to continue peddling their dangerous product,” Blumenthal said in a joint statement with U.S. Sens. Tom Harkin, D-Iowa, Dick Durbin, D-Ill., and Frank Lautenberg, D-N.J.

“Congress instituted tax increases and established tobacco-cessation programs to help encourage Americans to quit this harmful habit, and these efforts have proven effective. However, due to this tax loophole, tobacco companies are still able to make cheap tobacco products available, which may discourage some smokers from quitting. We … remain committed to closing this loophole and will continue our efforts to help Americans quit tobacco.”

The self-serve shops sell loose tobacco and “rent” the use of an automated cigarette-rolling machine to customers. Employees don’t touch the machines, but “talk” customers through the process. The machine makes the equivalent of a carton — 200 cigarettes — in 10 minutes for about $40, a savings of $25 or more over a carton of brand name cigarettes.

The General Assembly is considering legislation that would require roll-your-own tobacco shops to pay $5,000 for an annual manufacturer’s license.

In addition, the measure would require roll-your-own shops to comply with all manufacturing rules and regulations related to cigarette manufacturing — including paying Connecticut’s cigarette tax, which adds about $3.40 to a pack of cigarettes, Department of Revenue Commissioner Kevin B. Sullivan has said.

The added fees and taxes would bump up the price of roll-your-own cigarettes to the point where they

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