Smokers dodge taxes with new roll-your-own cigarette technology

woman smokingTaxes make up a large part of the cost of a pack of cigarettes, and smokers reeling at the skyrocketing cost of their habit (now up to as much as $11 a pack in New York) are desperately seeking a way to cut the cost. And they have. The work-around takes advantage of two loopholes in the law; the difference between the tax on cigar and cigarette tobacco, and the difference between buying ready-to-smoke cigarettes and rolling their own.

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.
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