Should a cigarette from a major manufacturer be taxed the same as a cigarette rolled automatically at a convenience store?
That was the question before the House Finance and Tax Committee Wednesday as they heard a lengthy debate that has pitted entrepreneurs who have capitalized on a loophole in the state’s tobacco tax against Big Tobacco.
The committee voted unanimously to support the bill, by Rep. Mike Horner, R-Kissimmee, which would modify the definition of cigarette manufacturer and impose the same state and federal tax on cigarettes rolled by automated machines beginning in 2014.
“This didn’t exist three years ago,’’ Horner told the committee. “They didn’t come out with a better mousetrap. It’s a tax dodge.”
The $16 per carton increase suppressed sales, stimulated the gray market, internet cigarette sales and the advent of roll-your-own machines, he said.
At least 110 tobacco shops and convenience stores in the state have emerged to sell loose tobacco, which is cheaper than premium brand cigarettes, and consumers load it into a machine rented at the store. Within minutes, the machine rolls and spits out dozens of cigarettes at half the cost of the pre-packaged products.
But several shop owners and lobbyists for the machines “rented” to smokers to allow them to make their cigarettes vigorously argued they can’t be compared to the tobacco manufacturing giants and taxing them would kill jobs.
“The power to tax is the power to destroy,’’ said Jim Eaton, lobbyist for RYO Machine Rentals and Retailers. “You’re being asked destroy these people’s business based on the premise that they are manufacturing cigarettes and nothing could be further from the truth.”
Scott Bembry, an employee at Johnson and Johnson my boss is not doing anything illegal. He pays his taxes….if we pass tax that could this out of business I am now a statistic on the unemployment live. I can’t live on unemployment and need can my 8 week old baby.”
But, Horner said, that the tax increase also led to loss of jobs at wholesale distributors, including a company in his district that laid off more than 200 employees.
“This is a zero sum game,’’ Horner said. “This is not economic development. It is killing jobs some place to create jobs elsewhere.”
He said he sympathizes with small business owners who made an investment, played by the rules and therefore gave them a two-year window to comply with the tax.
“With two years, that will get them plenty of time to get out of the lease,’’ he said. “This is highly, highly lucrative business when they are selling cigarettes for half price.”