Roll-Your-Own Tobacco Tax Approved In Both House And Senate

Republicans blasted a Democrat proposed provision in a massive budget-implementation bill to a provision to increase fees and taxes on so-called “roll-your-own” tobacco shops, but it passed along with the rest of the bill in the House by an 88-53 vote shortly before 8 p.m. Tuesday, and then in the Senate early Wednesday morning by a 22-14 vote along strict party lines. The bill now goes to the governor for his signature.

House Republican Leader Lawrence Cafero of Norwalk said that the tax provision was being foisted abruptly on a small but growing number of tobacco retailers – who had opened up their businesses legally, and had won a Superior Court ruling in February that turned aside state tax officials’ effort to take away their exemption from normal cigarette taxes. The provision ould take effect Oct. 1.

The new tax provision would put small business owners out of business, Cafero said. It would reclassify the roll-your-own shops as cigarette manufacturers, imposing thousands of dollars in licensing fees and requiring the cigarettes rolled by customers in the shops to be taxed as heavily as those manufactured by big tobacco companies – thereby removing a competitive advantage that so far has enabled the roll-your-own shops charge their customers roughly half what store-bought, packaged cigarettes cost.

Cafero said that imposition of the new roll-your-own tax “tells people who followed the law as it existed in Connecticut – who went out and invested their money, hired personnel, rented space, bought supplies – that upon passage of this bill, you got about three months, baby, ‘cause you’re out of business. Hundreds of jobs – gone – and we didn’t even have a public hearing on the bill. Connecticut’s ‘open for business’?”

Democratic state Rep. Patricia Widlitz of Guilford, co-chairwoman of the legislative finance committee, defended the new levy on the roll-your-own shops, saying there now are about 15 in the state and their numbers will keep growing rapidly if the state government doesn’t step in now. “We need to close this loophole,” she said.

Widlitz said that legislators who oppose the new tax measure on the basis of defending small businesses should think of the other small retailers such as convenience stores and liquor outlets that sell cigarettes according to the state’s tax regulations. She said those stores are being hurt by roll-your-own shops that take advantage of a tax exemption intended for individuals who roll their own cigarettes without the benefits of the refrigerator-sized machines in the roll-your-own outlets. The roll-your-own shops are “undercutting other businesses … to make a profit.”

Republican Rep. John Piscopo of Thomaston said the effective date could be pushed off until January or even later to let the roll-your-own shops adjust to the financial shock and recoup some of their investment in the roll-your-own machines that cost $40,000 to $60,000. Customers at roll-your-own shops in effect rent those machines, which take loose tobacco purchased at the store and roll it into cigarette tubes.

However, Widlitz said the measure’s Oct. 1 effective date gives the shop owners time to come up with a new business plan or make other arrangements. Anyone who entered the business after the legislature started talking about taxing roll-your own outlets did so “at their own risk,” she said. Ten states have adopted similar legislation, and Vermont “just banned these machines,” she said.

The roll-your-own bill was approved by Widlitz’s committee on April 3 – with Democrats outvoting Republicans – after state tax officials proposed the new levies in reaction to their defeat in Superior Court. But it died on May 9, when the regular legislative session concluded without any House or Senate vote being taken on it.

Few paid much attention to it until May 30, when Robert Braddock Jr., then finance chairman for the congressional campaign of state House Speaker Christopher Donovan, was arrested after an FBI sting and charged with conspiring to hide the true source of $20,000 in political donations in April and May, mostly to Donovan. The contributions purportedly originated with an investor in a roll-your-own shop who wanted to kill the roll-your-own tax proposal, but in reality was an FBI agent posing as such an investor.

The funds from the purported investor were funneled through straw donors, or “conduit” contributors, who put their names on contribution checks for funds that didn’t come out of their own pockets, an FBI agent said in an affidavit to support Braddock’s arrest. Co-conspirators of Braddock recruited the “conduit” contributors to pass along the sting money, the FBI affidavit said.

Donovan has denied any knowledge of the alleged wrongdoing, but stayed away from helping to craft the legislation – although he did vote with the majority on the overall budget-implementation bill containing the roll-your-own tax.

The state’s revenue services commissioner, Kevin Sullivan, State has said that failure to enact a roll-your-own bill would cost Connecticut about $3.4 million in revenue.

One of the roll-your-own shop owners who has vocally opposed the legislation, Tracey Scalzi, appeared at the Capitol Tuesday to make her arguments again. She said it would put her two roll-your-own shops – in Norwalk and Orange – out of business.

About 140 people at the 15 existing shops would lose their jobs – a lower estimate than Cafero’s “hundreds,” Scalzi said.

Cafero’s House Republican caucus was the only one of the four in the legislature known to have received funds that apparently originated with the FBI’s “roll-your-own” sting. Cafero said on June 1, the day after Braddock’s arrest was announced, that his caucus’s three political action committees were returning five $1,000 contributions to their donors because they were “of questionable origin.” Cafero has not been willing to identify the contributors – or to explain what arrangements led up to the contributions, who was involved, or what was said.