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.
Read Full Story

Can't get enough personal finance tips?

Sign up for Finance Report by AOL and get everything from consumer news to money tricks delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.