President Barack Obama will sign a $105 billion spending plan today to help preserve road-building jobs and low-interest student loans.
But tucked within the omnibus transportation package is a tax provision that could force most roll-your-own cigarette stores to go up in smoke, including nine such stores in Southeast Tennessee and Northwest Georgia.
"This will totally shut us down and end up hurting the economy by cutting jobs and taxes," said Angie Cunnyngham. She's general manager for Firebrand Smokes, which operates eight stores in the Chattanooga area where smokers avoid higher cigarette taxes by rolling their own tobacco.
"This place is like family to thousands of people in this area, and putting us out of business makes no sense at all," she said.
The new law will redefine stores such as Firebrand Smokes as cigarette manufacturers, making them pay the same taxes as cigarettes sold in convenience or grocery stores.
Since 2009 when Congress imposed different taxes on ready-made cigarettes than loose tobacco, roll-your-own stores have spread like weeds. The stores allow smokers to buy their own tobacco and rent rolling machines in the stores to make their own smokes, cutting their tax bill and cost of smoking nearly in half.
"It seems like the government tries to get everything they can from what the poor working man makes," said Floyd Palmer, a 50-year-old smoker from Hixson who on Thursday was rolling 800 of his own cigarettes at the Firebrand Smokes store in Hixson.
Palmer paid $96 for the equivalent of four cartons of cigarettes, about half the cost of the same smokes at a convenience store. Palmer said he has come to Firebrand Smokes every week for the past two years to buy loose tobacco patterned after Marlboro menthol cigarettes, then roll it up.
"I'm the one who operates the machine, so I don't see how they can say the store is a cigarette manufacturer," he said.
Palmer, who suffers from asthma and emphysema, also claims rolled cigarettes made from loose tobacco have fewer irritating chemicals.
Anti-tobacco groups, cigarette manufacturers and state revenue agents united in a highly unusual political alliance to convince Congress to close what they claim is an unfair tax loophole for roll-your-own shops.
In 2009, Congress more than doubled the federal excise tax on cigarettes and raised the tax on roll-your-own tobacco from $1.10 a pound to $24.78 a pound. But the tax on pipe tobacco increased only to $2.83 a pound and roll-your-own smoke shops quickly seized on the tax advantage of selling pipe tobacco, then using it to roll cigarettes.
In a recent study, the Government Accountability Office found that roll-your-own cigarette tobacco sales dropped 74 percent since the 2009 tax changes while pipe tobacco sales rose nearly tenfold. The GAO concluded the increase was because of consumers switching to pipe tobacco for their store-rolled cigarettes and not because of any increase in pipe tobacco sales.
U.S. Sen. Max Baucus, D-Mont., said he included a provision in the transportation bill being signed today to classify roll-your-own smoke shops as cigarette manufacturers to help level the playing field among cigarette retailers.
But Carrie Heffner, who with her husband, John, opened the U-Rolit tobacco store on Cleveland Highway in Dalton, Ga., last October, insists their store is different from conventional cigarette retailers.
"We're not cigarette manufacturers because the customer is the one who rolls the pipe tobacco we sell," she said. "I'm incredibly angry because they stuck this in the middle of a transportation and student loan bill, and we don't have anything to do with either of those areas of government."
The rolling machines, which cost about $33,000 each, make about 200 cigarette-equivalent smokes every eight minutes. While waiting for the rolling machines to do their work, customers at Firebrand Smokes often watch television or talk with other patrons on the leather couches in the front of the store.
"This is really like 'Cheers,' where everybody knows your name," Cunnyngham said. "It's going to be sad for a lot of people if we have to shut down."
Firebrand Smokes employs 44 employees at its eight stores and was preparing to open three more stores until the owners heard how the new cigarette manufacturing language was inserted into the transportation bill last week.
"Unfortunately, a lot of folks are simply going to go online now to buy their tobacco because they've found they like roll-your-own smokes better because there are fewer chemicals," Cunnyngham said. "That means there will end up being fewer jobs and less tax money collected."