Fiscal and policy implications of selling roll-your-own tobacco as pipe tobacco

Background. The Federal tobacco excise tax was increased on April 1, 2009. While excise tax rates prior to the increase were the same for roll-your-own (RYO) and pipe tobacco, after the increase the tax on RYO was $21.95 per pound higher than the tax on pipe tobacco. Subsequently, tobacco manufacturers relabeled RYO as pipe tobacco to offer these products to consumers at a lower price and tobacco retailers began to offer RYO cigarette machines to customers. Methods. Data on tobacco tax collections comes from the Department of Treasury. Joinpoint software was used to identify changes in sales trends. Estimates were generated for the amount of RYO sold as pipe tobacco and for Federal and state tax revenue lost through August 2011. Results. Approximately 45 million pounds of RYO tobacco has been sold as pipe tobacco from April 2009 to August 2011, lowering state and Federal revenue by over $1.3 billion. State revenue losses range from $63 million in Florida to $117,000 in Vermont. Eleven states have each lost over $10 million, with revenue losses in those states accounting for 62 percent of all state revenue lost. Conclusions. Selling RYO as pipe tobacco decreases state and Federal revenue, avoids regulations on tobacco products, and reduces the effectiveness of tobacco control price interventions. This presentation will discuss the findings of the study, and implications for state and local tobacco programs. This presentation will also describe attempts by states to attempt to curtail these activities and reactions by tobacco retailers and manufactures.