There is a new trend springing up in New York City and other places in the USA, roll-your-own cigarette shops. The concept of the stores is that customers choose from a selection of loose tobacco and roll their cigarettes themselves using rolling machines provided by the store.  Everything was fine until New York City law enforcement noticed and filed a complaint against several stores claiming that by letting customers roll their own cigarettes the shops are committing tax evasion.

Why is this so? Tax stamps in New York City are issued for packs of cigarettes. Only once the pack is manufactured does it become taxable. But in roll-your-own shops, it is the loose tobacco and the rolling that is charged for, not the pack. The cigarettes are put into packages that look like regular cigarette packs if the customer chooses, but these are not traditional cigarette packs.  

Some shop owners have made a few comments in passing that indicate that these shops were set up for the sole purpose to take advantage of this loophole in the system.  Jonathan Behrins, a lawyer for one of the shops said "It's a certain demographic that rolls their own. They don't really want to be bothered with Bloomberg reaching into their pockets."

Berhrins claims that many of the roll-your-own shops are a form of entertainment. Berhrins said that while some stores offer machines that can make 200 cigarettes in less than ten minutes, others take 45 minutes to make a carton. Therefore the rolling of the cigarettes is part of the customer a certain experience and not a way to save money at these shops.  

New York City does not think these shops are even using  a loophole, the city believes these stores are purposely committing tax evasion and going to great lengths to avoid paying taxes and buying tax stamps. The official complaint filed by the city said that "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 roll-your-own shops avoid taxes on two levels:

1. Loose tobacco intended for pipes, which is what the shops are buying, is taxed at much lower rates than tobacco for cigarettes.  At a federal level loose pipe tobacco is charged at $2.80 per pound verses $25 per pound for tobacco made for cigarettes.
2. The final product is sold without tax stamps or sales tax at the regular retails prices of cigarette packs.

Other states have ruled on the roll-your-own tax evasion issue and the rulings have generally not been in favor of the shops.

Anyone know if this is a trend outside the US as well? If so what are the motivations of roll-your-own shops in other countries?

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