Roll-your-own businesses in Western Pa. snuffed out by tax ruling
By Tom Fontaine
Published: Saturday, December 1, 2012, 8:00 p.m.
Updated: Sunday, December 2, 2012
Steve Smith spent more than $4,000 on electronic cigarette rolling machines that he hasn't used since opening a McKees Rocks tobacco shop in September.
“The machines are just sitting around collecting dust,” said Smith, 47, of North Fayette.
Smith planned to open RYO Butts 4 Less in July, but Congress passed a law two days before the grand opening that placed businesses with rolling machines in a class with cigarette-making giants Phillip Morris and R.J. Reynolds. The change affected several dozen shops in Western Pennsylvania with machines that customers could pay to use to roll low-cost, loose tobacco into smokes. Nationally, 45 million smokers buy 14 billion packs of smokes a year.
The law requires owners to impose excise taxes on cigarettes made and sold, erasing any competitive advantage over traditional sellers of name-brand smokes. That made it unfeasible for most owners of the roll-your-own shops, many of them small storefronts in retail plazas.
Several Pittsburgh-area stores closed their doors. Some are considering alternative business ventures at shop locations such as Steeltown Tobacco in West View, which plans to become a gun shop, said employee Crystal Regan, 20, of West View.
Others, including Smith, are trying to hang on by selling bags of loose tobacco and cigarette tubes. Smith said it costs about $12 to buy enough loose tobacco and tubes from his shop to make a carton, about one-fifth the price of a carton of name-brand smokes, on average.
Smith said he's barely making money to cover rent and utilities. He can't afford to pay employees, so he works eight to nine hours a day. He estimates he invested $40,000 in the business, including money to remodel a former law office to accommodate the shop and for 10 tabletop rolling machines that could churn out a carton in about half an hour.
“It caused the (roll-your-own) industry to fall apart,” said Julie Rauzan, director of sales at RYO Machine LLC of Girard, Ohio, one of the biggest sellers of rolling machines. It had more than 2,000 machines at 1,400 shops.
RYO quickly moved to make its refrigerator-sized machines inoperable to avoid being implicated in cases where shops might ignore the new law. The machines, which sold for more than $30,000, can produce cartons of cigarettes in 10 minutes but can't run without RYO's software, Rauzan said.
Rauzan said owners could continue using machines to roll cigarettes for personal use or for nonprofit smoking clubs. But owners would need to pay RYO for rights to the software and, in the case of a smoking club, for a license to operate.
The Ohio company is pursuing charges against two unidentified companies for software piracy, she said.“I'll just keep on trying and see what goes on,” said Smith.
He plans to honor a lease on his Chartiers Avenue retail space that extends through April but might close after that if business doesn't pick up.
Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or email@example.com.
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So, how do you like O'Bummer taxes now? The Chimp-in-Chief hates small businesses.