Senate Bill S6476B

                                BILL NUMBER:S6476

TITLE OF BILL:  An act to amend the tax law, in relation to roll-your-
own cigarette machines

PURPOSE OR GENERAL IDEA OF BILL: Provides that a retail establishment
with a roll-your-own tobacco machine shall be deemed a tobacco product
manufacturer and the resulting product, a cigarette.

SUMMARY OF SPECIFIC PROVISIONS: Section 1 would amend the tax law by
adding a new section 473-c.

Section 2 sets the effective date.

JUSTIFICATION: New York State has made eradicating tobacco use a top
priority in recent years. The State has gone about this in various ways,
both raising the cost of the habit as well as raising awareness of the
long term health risks smoking tobacco presents smokers.

This new form of Roll Your Own (RYO) cigarettes is nothing more than an
attempt to skirt both State and Federal taxes placed on the exact same
product sold by registered manufacturers. The tobacco used for these
machines is marketed as "pipe tobacco" which is currently taxed at a
dramatically lower rate than cigarette and cigar tobacco. In April 2009
Congress increased the federal excise tax on RYO tobacco to $23.68 per
pound. Pipe tobacco increased at a much lower rate to $1.73 per pound.
              

New York is losing a significant amount in cigarette taxes as consumers
are paying approximately $6.64 in state excise and sales tax per carton
for RYO cigarettes compared to $46.43 per carton on a regular carton-of
cigarettes.

The United States Department of the Treasury and the Alcohol and Tobacco
Tax and Trade Bureau (TTB) issued a ruling, TTB Ruling No.  2010-4 that
agreed that these retailers were in fact manufacturers of cigarettes and
should be treated as such. That ruling has been challenged in the courts
and is currently pending in the U.S.  District Court for the Northern
District of Ohio. In the meantime over 13 states have already dealt with
this issue by regulatory changes, and/or proposed legislation to correct
what is essentially a tax loophole created by this industry. The City of
New York in the past year has successfully sued companies evading the
City's own tax on cigarettes. This bill would correct this problem
state-wide.

Furthermore, the creators of these machines and the retailers who make
them available to consumers blatantly advertise that these cigarettes
produced by the RYO machines do not use fire safe cigarette paper as
mandated by laws.

This bill would require that retailers who make these RYO machines
available to consumers, or sell cigarettes produced by a RYO machine,
register as manufacturers and pay all the applicable taxes and fees that
any other cigarette manufacturer is required to pay.

PRIOR LEGISLATIVE HISTORY: This is a New Bill

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:  Currently the
State is losing a total of $39.79 in state excise, and sales taxes per
carton of Roll Your Own cigarettes sold; this bill will help the State
recover this lost revenue.

EFFECTIVE DATE: On the 90th day after it shall have become a law.

                                BILL NUMBER:S6476A

TITLE OF BILL:

An act
to amend the tax law and the executive law,
in relation to roll-your-own cigarette machines

PURPOSE OR GENERAL IDEA OF BILL:

Provides that a retail establishment with a roll-your-own tobacco
machine shall be deemed a tobacco product manufacturer and the
resulting product, a cigarette.

SUMMARY OF SPECIFIC PROVISIONS:

Section 1 would amend subdivision 1 of section 470 of the tax law.

Section 2 would amend the tax law by adding a new section 473-c.

Section 3 would amend paragraph a of subdivision 1 of section 156-c of
the executive law.

Section 4 sets the effective date.

JUSTIFICATION:
              

New York State has made eradicating tobacco use a top
priority in recent years. The State has gone about this in various
ways, both raising the cost of the habit as well as raising awareness
of the long term health risks smoking tobacco presents smokers.

This new form of Roll Your Own (RYO) cigarettes is nothing more than
an attempt to skirt both State and Federal taxes placed on the exact
same product sold by registered manufacturers. The tobacco used for
these machines is marketed as "pipe tobacco" which is currently taxed
at a dramatically lower rate than cigarette and cigar tobacco. In
April 2009 Congress increased the federal excise tax on RYO tobacco
to $23.68 per pound. Pipe tobacco increased at a much lower rate to
$1.73 per pound. New York is losing a significant amount in cigarette
taxes as consumers are paying approximately $6.64 in state excise and
sales tax per carton for RYO cigarettes compared to $46.43 per carton
on a regular carton of cigarettes.

The United States Department of the Treasury and the Alcohol and
Tobacco Tax and Trade Bureau (TTB) issued a ruling, TTB Ruling No.
2010-4 that agreed that these retailers were in fact manufacturers of
cigarettes and should be treated as such. That ruling has been
challenged in the courts and is currently pending in the U.S.
District Court for the Northern District of Ohio. In the meantime
over 13 states have already dealt with this issue by regulatory
changes and/or proposed legislation to correct what is essentially a
tax loophole created by this industry.

The City of New York in the past year has successfully sued companies
evading the city's own tax on cigarettes. This bill would correct
this problem state-wide.


Furthermore, the creators of these machines and the retailers who make
them available to consumers blatantly advertise that these cigarettes
produced by the RYO machines do not use fire safe cigarette paper as
mandated by laws. This bill would require compliance with existing
state law and ensure a safe product is being sold to consumers.

PRIOR LEGISLATIVE HISTORY:

This is a new Bill.

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
Currently the state is losing a total of $39.79 in state excise and
sales taxes per carton of Roll Your own cigarettes sold; this bill
will help the state recover this lost revenue.

EFFECTIVE DATE:
This act shall take effect on July 1, 2012.