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Staff file photo by Corey Perrine^^In this 2009 picture, Rick Potter of Auburn, Mass. feeds a cigarette-rolling machine with loose leaf tobacco at Tobacco Haven in Brookline.
Wednesday, March 21, 2012

State prevails in roll-your-own-cigarette debate

BROOKLINE – The state has won a long-running fight over whether a Brookline store was avoiding cigarette taxes by letting customers use a machine to roll loose tobacco into their own smokes.

In a settlement filed last week in Merrimack Court Superior Court, the owner of Tobacco Haven on Route 13 has agreed to stop using the roll-your-own-cigarette machines and make back payments into a settlement fund from cigarette manufacturers.

The exact amount of payments has to be calculated, but Assistant Attorney General David Rienzo, who described the proposed settlement, said it would probably be in “five figures.” The money exists in an escrow account that had been collected for some time, said Rienzo.

Manchester attorney Andrew Schulman, local attorney for North of the Border Tobacco LLC, the company that runs Tobacco Haven, declined to comment Monday. The owner and operator of Tobacco Haven, Joe Correia Jr., has consistently deferred comments to his attorneys.

The proposed settlement has not yet been accepted by a judge.

The case began in 2009 when the state said North of the Border should pay into an escrow account established by the state in 1998 after 46 states settled health claims with major cigarette manufacturers.

The money from that so-called Master Settlement Agreement, used to pay for various health care and other initiatives, is collected as a tax of 42 cents per pack of cigarettes. Each year the manufacturers generate a total pot of around $7 billion, some $50 million of which goes to New Hampshire.

At Tobacco Haven, customers could buy loose pipe tobacco as well as paper cigarette “tubes,” then use machines to insert the tobacco in the tubes and create cigarettes. The machines, which reportedly cost about $30,000 each, can roll 200 cigarettes in a few minutes. Loose pipe tobacco is not covered by the health-settlement escrow account, and pays much smaller federal taxes that cigarette tobacco.

Last year a carton at Tobacco Haven cost about $26, $7 less than discount brands and as much as $20 less than name-brand cartons.

North of the Border argued that this business is not covered by the settlement involving commercial cigarette manufacturers. The state disagreed and brought suit; last summer, the New Hampshire Supreme Court upheld the state’s argument, and after several months of debate over issues involving corporate ownership, the draft settlement was reached.

Coincidentally, the tax status of cigarettes created from loose tobacco is also being debated by the federal government. As reported by the Washington Post, the $109 billion federal highway bill includes an amendment that would classify shops that offer the machines, as Tobacco Haven did, as “cigarette manufacturers.”

That is exactly the argument taken by state regulators.

If the federal definition becomes law, it would not only require stores using rolling machines to pay into the health escrow account, but also to pay much larger federal excise taxes. They might possibly also have to meet various other requirements about labeling and conditions.

The Post said the bill was supported by major cigarette manufacturers as well as public health advocates, who argued that the machines are a way to skirt tax and health laws.

The issue is complicated, as Schulman noted in his brief filed with the state Supreme Court as part of last summer’s arguments, by the federal government’s tobacco-taxing policy. Taxes are much higher on loose “cigarette tobacco” than on loose “pipe tobacco” – in 2009, they were $2.83 a pound on pipe tobacco and $24.78 per pound on cigarette tobacco – even thought the two can be identical.

Much, although not all, of the tobacco sold at Tobacco Haven was labeled “pipe tobacco,” but the state argued, and the state Supreme Court agreed, that when rolled into cigarettes it was subject to state laws concerning cigarette tobacco.

But the designation may affect payments made into the health-settlement account.

David Brooks can be reached at 594-6531 or dbrooks@nashuatelegraph.com.