Court: Roll-your-own cigarette machines illegally avoid taxes

BROOKLINE – The state Supreme Court has ruled against the store Tobacco Haven, putting into question the future of the roll-your-own cigarette machines that the state said might imperil some $50 million in annual tobacco payments to the state.

Rool your own cigarette

Rool your own cigarette

In a unanimous ruling released Thursday, the court agreed with an earlier Superior Court decision that said the store must either shut down the machines or ensure the state gets per-cigarette tax payments established as part of a 1998 settlement about health costs related to smoking.

Tobacco Haven has argued that because the smokes are rolled by customers, using tobacco and papers bought at the store, they are exempt from the payments.

Customers buy loose tobacco and paper “cigarette tubes” and use the machines to roll up to 200 cigarettes in roughly 10 minutes. The resulting cigarettes cost less than half the price of packaged cigarettes in cartons or packs.

A clerk at Tobacco Haven, located on Route 13 near the state border, said Thursday afternoon that he had been told not to comment. The cigarette machines appeared to still be in operation in an adjoining room.
The complexity of the case means that the future of the machines is unclear.

“We’ll need to discuss this internally, then we’re going to need to have a discussion with their counsel to figure that out,” said Assistant Attorney General David Rienzo.

It’s also not clear, Rienzo said, whether or when the state should be paid the escrow collected on the tobacco. The money, likely to run into the thousands or tens of thousands of dollars, has been put aside since late 2009, when a Superior Court judge first filed a temporary injunction in response to state rulings.

Tobacco Haven’s lead attorney, Jeffrey Burd of Ohio, was in court Thursday and his office said he would have no comment. No comment was available from Getman, Schulthess and Steere of Bedford, who also participated in the Supreme Court arguments.

The owner and operator of Tobacco Haven, Joe Correia Jr., has consistently deferred comments on the case to his attorneys.

The case has drawn considerable attention because the state is required to collect payments of about 42 cents per pack from tobacco product manufacturers, as part of the 1998 Master Settlement Agreement. If the state doesn’t collect the money, which is put into an escrow account and eventually paid out to the states to handle smoking-related health issues, it might lose out on its portion of the settlement.

New Hampshire gets six-tenths of 1 percent of that roughly $7 billion pot – a tally of some $50 million a year.
The legal battles date back to August 2009 after Tobacco Haven installed the machines and drew crowds of customers seeking the relatively cheap smokes – although a taste test run by three Telegraph smokers in 2009 found that the results were less tasty than commercial cigarettes and too irregularly packed to be an enjoyable draw.

The state filed suit in August 2009, asking that the company either stop using the machines or make sure the escrow payments, roughly 50 cents per 20-cigarette pack, were made.

A superior court injunction followed up, and in 2010, a court granted the state’s motion for quick judgement, saying “selling loose untaxed tobacco, which is then immediately rolled into cigarettes retained by the customer in cigarette rolling machines conveniently located on the premises, is clearly a subterfuge to circumvent statutory requirements.”

The store appealed, and the issue went to the Supreme Court.

At the same time, Correia created a new corporate entity called RYO, for roll-your-own, and the machines were transferred under its purview.

A superior court decision applied the Tobacco Haven injunction to RYO as well, but the supreme court vacated that decision, ruling that Correia hadn’t been given an opportunity to argue the role of RYO in the case.

The question of RYO’s status in the case is likely to be taken up again by the lower courts, Rienzo said Thursday.

Another argument made earlier by Tobacco Haven, that the tobacco involved is pipe tobacco and therefore covered only by a much smaller federal tax, was rejected by the supreme court.

Tobacco Haven also argued the loose tobacco they bought from manufacturers should be considered cigarettes and therefore the manufacturers should pay the tax. The Supreme Court ruled that was a question that had to be sorted out in lower courts.

Roll-your-own machines exist for at-home use, much smaller and slower than the commercial version.

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