A new Eau Claire business has smokers rolling in to roll-their-own cigarettes. And they’re taking advantage of a tax loophole to save money. The business is called Holy Smokes! Customers buy loose tobacco, and use the firm’s sophisticated $30,000 machines to make their own Viceroy cigarettes.
The cartons end up costing $31. That’s about half the cost of a carton of name-brand cigarettes at a local store.
Why is it so much cheaper? The store uses pipe tobacco, which is taxed at a much lower rate than rolling tobacco. And since customers make the cigarettes instead of store employees, the business is not regulated as a manufacturer.
“We buy the machine, we sell you the tobacco, we sell you the tubes, and then we rent you the machine. So we’re just renting you a service,” says Store Manager Michael Nack.
State tax officials say nothing in state law deals with the machines, and they are working to determine potential legal issues.
The U.S. Treasury Department has already taken the stance that these businesses are manufacturers, and should be paying the higher taxes. That decision is currently tied up in court.