NYC Sues RYO Shops

City files suit that shops engage in tax evasion
Tobacco E-News | November 22, 2011
NEW YORK — New York City’s legal department has filed a lawsuit against Island Smokes’ stores in Manhattan and Staten Island, arguing that the stores’ roll-your-own (RYO) offerings mean Island is engaging in tax evasion.

A 10-pack carton of the RYO cigarettes at Island costs less than $40, because Island charges taxes at the rate set for loose tobacco, a fraction of the price of commercially made cigarettes, according to an Associated Press article. For commercially made cigarettes, the taxes alone are $5.85 per pack ($4.35 for the state tax and a $1.50 city tax).

According to city lawyers, every package of cigarettes sold in the state must bear a New York tax stamp, with businesses that sell unstamped cigarettes violating local law and the federal Contraband Cigarette Trafficking Act. The suit, which was filed in Manhattan federal court, also says that the stores violate a state law requiring cigarettes to meet fire-safety standards.

“By selling illegally low-priced cigarettes, defendants not only interfere with the collection of city cigarette taxes, they also impair the city’s smoking cessation programs and impair individual efforts at smoking reduction, thereby imposing higher health care costs on the city and injuring public health,” the complaint said.

A lawyer for Island Smokes, Jonathan Behrens, said the company is simply selling loose tobacco and tubes and giving customers access to rolling machines to make the cigarettes themselves — and “not selling unstamped cigarettes.”

Legal battles over shops using RYO machines are ongoing in Wisconsin, West Virginia and New Hampshire. The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau also issued a ruling Sept. 30, 2010, that retailers who give customers access to RYO cigarette machines are manufacturers, and are subject to the same licensing rules as other cigarette makers. In December of 2010, a federal district court judge issued a temporary injunction against the enforcement of the TTB rule on RYO machines. The lawsuit is now on appeal to the U.S. Circuit Court of Appeals.

Several weeks ago I saw these machines in a tobacco shop in TN. I see the opportunity but see the legal battle also as mentioned? Is this a wait and see situation or a real opportunity? What are your thoughts?

10 comments ↓

#1 Candy Girl on 11.30.11 at 11:12 AM

This is an issue that will be litigated for years, unless legislative action specifically bans or endorses the activity. Of course the likelihood is that legislative action would ban it. So, it’s probably in the best interests of tobacco shops to take advantage of the opportunity knowing that it’s only a short or intermediate window of opportunity at best.

#2 Jersey Kid on 11.30.11 at 11:05 PM

Does anyone know where I can get info on these machines? How much do they cost? Very interested in possibly looking at expanding my offer to include this offering? My RYO/MYO business is doing very well!

#3 OTP Kid on 12.12.11 at 4:33 PM

Be careful, many people are not getting these due to the fact they could be hit with massive retroactive taxes if it’s determined they mena you’re a manufacturer of cigarettes

#4 Jersey Kid on 12.13.11 at 1:33 PM

Oh wow – Thanks for the info OTP kid. That would make sense.

#5 TAZ on 12.21.11 at 8:05 PM

THIS JUST IN!

Giving customers access to tobacco and RYO machines is akin to selling untaxed cigarettes, lawsuit insists.
Two New York-based roll-your-own tobacco stores run by Island Smokes—one in Chinatown and one in Staten Island—have agreed to close their doors by Feb. 1, following a lawsuit settlement, according to city officials, the New York Post reported.

Island Smokes, had been providing customers with loose tobacco, tubes of cigarette paper and in-store access to cigarette-making machines, which officials claimed amounted to selling untaxed cigarettes.

The company had faced a lawsuit brought by city lawyers, and agreed to shut down in settlement of that lawsuit, according to a Law Department spokeswoman.

At least five other roll-your-own businesses have started up since Island Smokes came under attack by city officials, and several of those businesses have also been sent letters, warning them to cease and desist their roll-your-own business or face a lawsuit that would seek to force their closure.

#6 OTP Kid on 12.28.11 at 3:23 PM

Bravo to NYC, this should be done everywhere in the United States before these operators destroy the entire industry with their tax avoidance schemes.

#7 Anonymous on 01.02.12 at 7:45 PM

The smokers are on the first line to have a profit of RYO machines; taxpayers have nothing to loose; of course the one that may loose is the “BIG COMPANY OF CIGARETTES”

#8 OTP Kid on 01.08.12 at 7:07 AM

Anonymous – you need roll-your-own dictionary, the word is lose, not loose.

#9 Jersey Kid on 01.10.12 at 1:26 PM

any one that is anonymous should at least make up a name – hey i got one for you – “looser” lol
just kidding

#10 Bill on 06.17.12 at 12:55 PM

Dear Jersey Kid, I have the information on the machine you are wanting Please contact me

Leave a Comment