1. Is it fair that Congress defined retailers operating roll-your-own machines as manufacturers?
2. Are the tobacco retailers being ethical by labeling the loose tobacco as pipe tobacco so that smokers can avoid the high tax and by providing roll-your-own machines for consumers?
In 2009, federal taxes on a carton of cigarettes increased $6.16 to $10.06. The tax on a pound of loose pipe tobacco increased $1.73, resulting in a total tax per pound of only $2.83. The tax on loose cigarette tobacco increased the most-from $1.09 to $24.78 per pound. Small tobacco shops have purchased machines that allow shoppers to make 20 cigarettes per minute. The loose tobacco is labeled "pipe tobacco," allowing smokers to make their cigarettes for almost half the price of readymade cigarettes because of the much lower taxes. The U.S. Government Accountability Office claims federal tobacco tax revenue decreased almost $500 million between April 2009 and September 2011 as a result of the booming roll-your-own shops sales. The Alcohol and Tobacco Tax and Trade Bureau declared that retailers using these machines are manufacturers. Makers of the machines got a court injunction, giving temporary reprieve for retailers. However, in 2012 Congress approved an amendment tucked into a highway bill expanding the definition of a manufacturer to include these retailers, which would subject them to federal excise taxes. Lawmakers felt these retailers were taking advantage of an unintended tax loophole.