The Chicago Employment Law Blog

Federal Law Will Kill Roll-your-own Cigarette Stores, Jobs

The war on smoking and cigarettes continues. Last month, Illinois increased taxes on roll-your-own machine cigarettes, which forced some business owners to move over the Wisconsin border. Now, President Barack Obama is expected to sign a bill that will increase taxes at the federal level, reports the Chicago Sun-Times.

Goodbye, small business.

For those of you unfamiliar with the "roll-your-own" concept, the machines essentially take tobacco and make cigarettes with the push of a button. These are not the hand-rolled cigarettes of our forefathers; they look just like the ones manufactured by Big Tobacco.

The war on these RYO stores has been ongoing since 2009. That year, Congress passed a law that doubled the federal tax on cigarettes and raised the tax on RYO tobacco from $1.10 a pound to $24.78 a pound.

Pipe tobacco, meanwhile, was only raised from $1.10 to $2.83 a pound. Care to guess what happened next? Pipe tobacco sales increased from 3.2 million pounds to 30.5 million pounds per year.

Local legislation in Cook County and at the state level has already closed the loophole by increasing taxes to fund Medicare. Starting August 1st, they will be taxed at the same rate as ordinary cigarettes, plus retail owners will have to get a machine-operator license.

They say that the power to tax is the power to destroy. And according to some local business owners, that's exactly what will happen. One man, Noel Valenti, told the Sun-Times that 21 employees will lose their jobs.

While those employees can turn to the state's overburdened unemployment system, what about the business owners? A few of them might survive as specialty or niche shops, but with 60 machines in the state, that's a lot of lost businesses, jobs, and tax money.

While the closed loophole is, according to the Associated Press, expected to raise nearly $100 million in cigarette taxes, one wonders how much of that will be offset by the loss of income tax from these small businesses and by people that quit smoking after the cost per carton nearly doubles.

Others think this has to do more with protecting Big Tobacco than closing a so-called loophole. Altria Group, which owns Phillip Morris, and Ligget Group, a discount cigarette manufacturer, joined with health advocates to support the tax increase, which was hitched on to a Federal Highway bill, reports Bloomberg News.

Whether it was a tax measure, health measure, or a favor for Big Tobacco, the new law could mean more small businesses going under.

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