State Looking To Tax Roll-Your-Own Cigarette Machines

State lawmakers are looking at legislation designed to tax roll-your-own cigarette machines that allow Iowans to produce their own tobacco products at about half the price of buying their smokes retail.

Sen. Pam Jochum, D-Dubuque, said owners of roll-your-machines that cost about $35,000 have set up store fronts where customers can purchase loose tobacco and tubes with or without filters and then temporarily rent the machine to produce up to 200 rolled cigarettes in about 10 minutes. She said the products are assessed state sales tax but not cigarette or excise taxes like similar manufactured cigarettes.

“We are closing a technical tax loophole that has allowed these roll your owns to escape or evade taxation,” said Jochum, floor manager of Senate File 2328 – a wide-ranging bill offered by the state Department of Revenue that seeks a number of changes that includes treating cigarette rollers as vending machines and increasing the tax on store-rolled smokes. The tax change sought by the state revenue department would not apply to hand-rolled cigarettes that consumers who purchase loose tobacco might make at work or home.

Jochum said she views the issue as one of tax equity in requiring owners of roll-your-own machines to pay the same tax that cigarette makers pay.

However, Jeffrey Burd, an Ohio attorney representing a company with roll-your-own machines in Iowa, said the situation in Iowa is a “very unholy alliance” of anti-smoking advocates and big tobacco manufacturers, distributors and retailers working together to snuff out a budding business.

“They don’t want to level the playing field, they want to demolish the playing field,” said Burd, who contended that people who roll their own cigarettes pay tobacco tax at a rate of 50 percent of the wholesale price of the tobacco and the idea that a loophole exists in Iowa’s law “is a myth.” He said the provisions in S.F. 2328, which could be debated as soon as Wednesday, would put small businesspeople who purchased roll-your-own machines out of business.

“This bill would treat some people who roll their own cigarettes differently than others,” Burd said. He noted that similar efforts have been tried in at least 26 states, with a few succeeding but most have failed.

Jochum said proponents try to portray the roll-your-own operations as mom and pop shops but generally the businesses are operated by out-of-state owners who have placed machines in Dubuque, Marion, Davenport and Burlington. With five machines currently known in Iowa and at least six more on order, the Dubuque Democrat said she hopes lawmakers get in front on the taxation issue to avoid a repeat of the TouchPlay fiasco where businesses who purchased state lottery devices were hurt when the Legislature pulled the plug on the program.

“Our concern is a lot of innocent people will purchase (roll-your-own machines) only to have the state say you can’t do it,” she said. “We’re trying to address it early on before this blossoms into something very large.”