Senate-House Committee Approves RYO Manufacturer Language

WASHINGTON, D.C. -- A Senate-House conference committee last night approved legislation that would classify retailers who operate roll-your-own (RYO) cigarette machines as cigarette manufacturers. The provision is part of the bipartisan highway funding bill conference report HR 4348, which is expected to receive approval from both the Senate and the House of Representatives during its scheduled vote tomorrow. The current highway funding bill is set to expire June 30.

The conference report language is as follows:

SEC. 100122. ROLL-YOUR-OWN CIGARETTE MACHINES. (a) IN GENERAL -- Subsection (d) of section 5702 of the Internal Revenue Code of 1986 is amended by adding at the end the following new flush sentence: ''Such term shall include any person who for commercial purposes makes available for consumer use (including such consumer's personal consumption or use under paragraph (1) a machine capable of making cigarettes, cigars, or other tobacco products. A person making such a machine available for consumer use shall be deemed the person making the removal as defined by subsection (j) with respect to any tobacco products manufactured by such machine. A person who sells a machine directly to a consumer at retail for a consumer's personal home use is not making a machine available for commercial purposes if such machine is not used at a retail premises and is designed to produce tobacco products only in personal use quantities.''

(b) EFFECTIVE DATE -- The amendment made by this section shall apply to articles removed after the date of the enactment of this Act.

Once classified as cigarette manufacturers, RYO retailers would have to seek all permits and pay all applicable taxes and bonding, according to media reports.

The use of RYO machines as a tax loophole that allows smokers to purchase cigarette paper and loose tobacco to roll their own cigarettes, but only pay tax on the paper and tobacco, has drawn concern from organizations such as NACS, the American Wholesale Marketers Association (AWMA), National Association of Tobacco Outlets, Petroleum Marketers Association of America, 7-Eleven Inc., Cumberland Farms, Kum & Go, Kwik Trip and Valero Retail Holdings.

In response to the language approval, the AWMA stated that the legislation "will ensure much-needed market certainty and will promote a more level competitive playing field."