This is a story about big business vs. small.
I am a small-business owner of a roll-your-own (RYO) store in Seattle. Along with 64 other operators across Washington, I pay state sales, employment and B&O taxes. Together, we employ 250 people in communities that need our jobs, and we purchase local goods and services that contribute to keeping this struggling economy pressing forward.
In the past few weeks, there has been a great deal of press regarding our businesses in this state. The state wants to “reclassify” our stores as cigarette manufacturers (currently we offer pipe tobacco, tubes and machine rental); in effect, this will create an opportunity for new state tax revenue.
This debate boils down to market share and profits. If these laws are passed, classifying our businesses as cigarette manufacturers will make them untenable.
At the state level, much of the criticism has been made of “tax avoidance” by our customers and a missed opportunity for tax collection from the stores. This means more than adding an additional $20 state tax stamp to all of our smokes.
The state wants to require that we purchase cigarette tobacco from a single, state-approved vendor at three times our current cost. According to court documents, the state Department of Revenue and the Liquor Control Board estimate that they are losing between $32,000 and $150,000 per day in cigarette taxes from our stores. Those departments maintain that “consumers ... are currently simply evading the tax.”
Will the state collect additional revenue? No. The stores will close, and Washington state will lose taxes that the RYO stores have been paying and force our employees to file for unemployment.
At the federal level, Section 100122 of the Highway Bill is an arbitrary and immediate reclassification of small retail tobacco shops. This provision for RYO stores to become “cigarette manufacturers” will force all 1,200 businesses – which have more than 10,000 employees nationwide – to close indefinitely.
It was inserted into the bill by Republican U.S. Rep. Eric Cantor, House majority leader from Virginia, home of powerhouse tobacco and cigarette producer, Phillip Morris. The anti-RYO provision in a bill that will assuredly be signed is no coincidence.
RYO stores have steadily grown in the past two years; we’ve gained new customers who want to make their own smokes and we’ve increased locations across the country. We threaten the market share and profits of Big Tobacco, even though we will never be able to compete (and we don’t want to) with their powerful manufacturers and lobbyists.
What will happen, if President Barack Obama does not issue a “signing statement” on this portion of the bill, will ultimately send thousands to the unemployment lines. This is not going to be a tax bonanza, but rather a drain on already stretched state budgets across the U.S.
While we can all argue about taxes, and who is and who is not paying their fair share, at the very core of this issue is the threat from RYO stores and market share shrinkage for Big Tobacco. If these misguided changes are made against our small businesses, many more of us will lose than win.
Paul Gruman owns Tobacco Joe’s Rainier in Seattle.
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