Roll-Your-Own Business Chooses to Close in Face of Legal Fight

STATEN ISLAND, N.Y. -- Island Smokes is throwing in the towel rather than get into a legal battle over roll-your-own cigarettes. As CSNews Online reported last month, the New York City legal department initiated a lawsuit against the owners of Island Smokes for tax evasion.

However, the owners of Island Smokes decided to shutter the business as of Feb. 1 rather than fight. Jonathan Behrins, the lawyer for Island Smokes, said the store's owners agreed to settle because they wouldn't have been able to afford a legal battle that would likely have carried a six-figure price tag, according to The Staten Island Advance.

"We were really twisting in the wind. We were the only one being sued," he said. "We do not have the money to fight City Hall.... We're literally fighting City Hall because the mayor is vehemently opposed to smoking."

At Island Smokes, customers pay $30 for a carton's worth of tobacco and paper tubes, then use one of the small rolling machines in the store to make their own cigarettes. The problem, however, stemmed from the fact that customers do not pay cigarette taxes.

According to the city's lawsuit, the store takes advantage of a tax loophole and charges taxes at the rate set for loose tobacco, which is much smaller than a manufactured cigarette pack. Loose tobacco is taxed by the federal government at $2.80 per pound, compared with $25 per pound for tobacco made exclusively for cigarettes, as CSNews Online reported.

Also, shops such as Island Smokes do not have to put any funds toward the cigarette manufacturer trust fund, which finances health programs for treating smoking-related illnesses. In addition, RYO shops sell tobacco packs without local tax stamps, which in New York carry a $1.50 city tax and a $4.35 state tax.

Now a consent order signed by the owners of the store and the city late last week calls for Island Smokes to "wind down" its business, liquidate its inventory, and "cease all business operations" under its current trade name, as the The Staten Island Advance reported.

According to the order, the owners agree to stop "manufacturing, possessing, advertising, offering for sale, selling, and/or distributing cigarettes that do not bear New York State and City tax stamps or which are not certified as fire-safe as required by New York law, including, but not limited to, by selling loose tobacco and pre-formed cigarette paper tubes and providing customers with access to machines that produce finished cigarettes."

The store and the city's attorney signed the order on Thursday, and U.S. District Judge Katherine B. Forrest signed off on Friday.

Island Smokes attorney told the newspaper that money was at the heart of the city's action against Island Smokes. "The real deal is, they want their tax money. They want their revenue," Behrins said.

Behrins added he doubts the issue of roll-your-own stores in New York City will go away any time soon, especially if similar stores facing potential civil lawsuits or cease-and-desist letters band together and pool their resources.

He is also keeping an eye on a legal battle between one of the makers of RYO machines and the U.S. Department of Treasury. That case is pending in the U.S. Sixth Circuit Court of Appeals.