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Roll-your-own smokes cost state tax revenue

New York State is losing millions of dollars in tax revenues by roll-your-own cigarette outlets selling loose tobacco at a lower tax rate usually reserved for pipe tobacco, federal officials warned Wednesday.

The U.S. Centers for Disease Control said the state lost nearly $17 million in tobacco tax revenue in a 16-month period ending last August. Nationwide, all states were out nearly $400 million and the federal government lost out on nearly $1 billion.

The situation has likely only worsened in New York since last summer as more roll-your-own cigarettes are sold in tobacco shops -- which health groups say skirts state law and will raise smoking rates because of the cheaper access to cigarettes.

Attorney General Eric Schneiderman recently acted on roll-your-own shops in New York City and the Syracuse area.

New York trailed only Florida, California and Texas in lost tobacco tax revenues under a practice in which roll-your-own shops sell pipe tobacco to make cigarettes at a tobacco tax level that is nearly $22 per pound cheaper than loose tobacco.

The report's authors said the tax scheme employed by roll-your-own shops "blunts the public health impact excise tax increases would otherwise have on reducing tobacco use through higher prices."

The CDC report did not look at tax avoidance issues by smokers turning to cheap, roll-your-own cigarettes compared with taxable, brand-name sales.

"Certainly, given New York's high cigarette tax, the lost revenue due to people switching from manufactured cigarettes to roll-your-own is even greater than the loss reported here due to the pipe tobacco versus roll--your-own taxes," said Russell Sciandra, director of advocacy at the American Cancer Society in New York.