Smokers dodge taxes with new roll-your-own cigarette technology
Cigarettes and pipe tobacco carry different federal excise taxes: cigarettes are charged $1.01 a pack, (around $30 a pound), and tobacco labeled for roll-your-own cigarettes is taxed $24.78 a pound. Pipe tobacco is taxed only $2.83 a pound.
A pound of tobacco yields around three cartons of roll-your-own cigarettes. $30 a pound vs. $2.83 a pound is plenty of incentive for tobacco manufacturers to make and brand some cigarette-like tobaccos as pipe tobaccos.
The challenge for smokers then is to avoid the tax on pre-made cigarettes by rolling their own, using this cheaper "pipe" tobacco. Fortunately, for them, many smoke shops have installed roll-your-own machines, which inject pre-made cigarette tubes with this tobacco while the customer waits. There are also a number of automated home table-top machines that serve the same purpose.
How much can a smoker save? I can buy a pound of tobacco similar to Marlboros in Columbus, Ohio for $15. Add in the cost of the tubes (about 2 cents apiece) and ignoring for the moment the one-time expense of the home rolling machine, and I can produce a pack of smokes for around $0.70. A pack of Marlboro cigarettes locally sells for around $5. That's a huge difference; for a two pack a day smoker, over $3,000 a year.
Look for the government to quickly patch this loophole, though. Since these taxes serve two purposes, to bring in revenue and discourage people from smoking, there is a a strong incentive to douse this method of beating the tax.