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NEW YORK -- New York City's legal department is suing Island Smokes, the owner of two roll-your-own (RYO) cigarette shops, for tax evasion. The amount of damages being sought is not yet known.
According to the Associated Press, customers at Island Smokes can leave the store with an entire carton of cigarettes for under $40. That's a huge bargain, considering New York City has the highest taxes on cigarettes, amounting to $5.85 per pack.
The lawsuit states that customers are saving a great deal at Island Smokes because 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.
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, according to the news source, 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.
At Island Smokes, customers select a blend of tobacco leaves, feed the tobacco and some paper tubes into machines and return to the counter with the finished product to ring up the purchase, the AP reported.
The suit, filed in the federal court in Manhattan, also accuses Island Smokes of violating a state law requiring cigarettes to meet fire safety standards.
New York City Mayor Michael Bloomberg is reportedly a staunch advocate of the lawsuit and any similar legal action against retailers who attempt to circumvent taxes.
"By selling illegally low-priced cigarettes, defendants not only interfere with the collection of city cigarette taxes, they also impair the city's smoking cessation programs and impair individual efforts at smoking reduction, thereby imposing higher health care costs on the city and injuring public health," the complaint states.
Roll-your-own machines have been coming under fire in several other municipalities and states as well, including in New Hampshire, West Virginia and Wisconsin. Officials argue that by rolling their own, customers avoid paying the state's cigarette tax like they do when they purchase a pack or carton of cigarettes.