Roll-Your-Own: Good News for Smokers, Upsetting to Others

Smokers who have seen the cost of packs and cartons of cigarettes rival that of a week's pay in poorer countries are happy to see Muskego's newest business: Roll-N-Go Tobacco.

Co-owner Dave Dassow said people have been stopping in to try the alternative to prepacked cigarettes, which saves them about 50 percent of the cost. The trade off is that they have to roll their own (RYO). Or, more technically, have the tobacco 'blown' into a paper tube in a large machine.

Customers pick the loose tobacco blend and load the machine, which costs store owners an average $32,000 to purchase, watching as the individual cigarettes are created and deposited in a chute for them to box up. It takes about eight minutes (or 25 cigarettes per minute) to get a carton of cigarettes made.

However, not everyone is thrilled to see the RYO business move in.

Local store owners whose cigarette business represents XX percent of their store sales argue that the process is unfair to them. RYO operators have been able to take advantage of a tax loophole, which allows them to sell the cigarettes at a much lower price. As many store owners of the self-service market view themselves as rental companies and not cigarette manufacturers because it's the customer, not them, making the cigarettes, the Wisconsin Department of Revenue has responded.

A convenience store pays $35.21 just in taxes charged on a typical carton of 200 cigarettes. Roll your own tobacco is taxed at $24.79 per pound at the federal level. A pound yields approximately two cartons worth of homemade cigarettes, which nets these businesses a significant savings to pass along to customers.

"It's like money in their pocket, when you think of the taxes they aren't paying for the same thing we sell," said Hardy Bhatti, who owns the Muskego Mobil station and says cigarette sales account for 75 percent of his business. He also sells loose tobacco for about $22 in a bag that would likely make two cartons' worth.

A memo sent from the State Department of Revenue in September 2011 told retailers operating a RYO machine on premises to make cigarettes with loose tobacco are both a manufacturer and distributor. This would require the retailer to obtain additional permits and certifications, and to sell more than 50 percent of the RYO cigarettes wholesale to other retailers or vending machine operators. The memo matched a ruling from the United States Alcohol and Tobacco Tax and Trade Bureau.

Jill Blenski, with the Muskego clerk's office, said the requirement is now suspended, as the U.S. District Court in Ohio filed a temporary restraining order preventing the federal bureau from enforcing the provisions outlined in its decision and that of the Wisconsin DOR. In December, the temporary restraining order was replaced with a preliminary injunction until a resolution is reached on that appeal. In other words, Roll-N-Go so far does not have to comply with the September memo. Otherwise, Blenski confirmed that the business does have the proper licensing to operate.

Should the courts rule in favor of the state, store owners risk fines or shutdown if they don't comply with the terms of the memo. The costs to comply, say owners of RYO businesses, would basically eliminate any savings they could pass along to consumers, and basically remove their competitive advantage.

For now, the owners of Roll-N-Go hope to keep their machine - and their new business - rolling.