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Published: Wednesday, May 9, 2012, 12:01 a.m.

Owner of tobacco shop may sue over tax change

He says the price increase the tax will bring could hit his business hard.

EVERETT -- Joe Baba doesn't know what his customers will do when the price surges for cigarettes they roll and purchase at his Everett Mall Way store.
But the owner of Tobacco Joes knows how he's going to respond to the freshly minted state law forcing the hike: sue.
"It will happen in the very near future," Baba said last week when asked when and where he plans to launch his legal fight.
Baba is an emerging face of a niche industry offering smokers a way to save money on cigarettes by buying tobacco and using an automated machine to roll their own.
Right now, customers of his store in Everett and similar establishments around the state avoid paying hefty cigarette taxes by making smokes with brands of pipe tobacco, which are taxed at lower rates.
The law signed Wednesday by Gov. Chris Gregoire will tax all varieties of loose tobacco offered in the stores at the same rate as that used in packaged cigarettes. The change takes effect July 1.
Baba estimates the law will effectively eliminate the price difference between those rolled by hand and those sold in stores.
Today you can buy the equivalent of a carton of cigarettes at his store for about $39, but after July 1 those smokes will cost around $20 more, he said.
State revenue officials estimate the average price of a carton of roll-your-own smokes in Washington will be $67.60 -- only three dollars less than the average paid for a conventional carton of state-taxed cigarettes.
"This will create far less customers to some of the stores, maybe most of the stores, maybe all of the stores," Baba said. "It depends on customer loyalty. Will it be strong enough to stay in business? That's the question."
Baba also owns Roll Your Own Northwest, the company which sells and services cigarette-making machines used in his Everett store and roughly 65 other establishments around the state.
He's been fighting the tax change legislation since its introduction in the Legislature. He wrote Gregoire and urged her to veto the bill, arguing in part the lower prices aid smokers living on little income.
"We are HELPING these customers by saving them much needed finances during one of the most depressing economies of our lifetime," he wrote. "These customers are already addicted to smoking and will continue to smoke whether our stores are open or not. We are simply providing them the opportunity to save some money by making their own smokes."
Gregoire said Wednesday she never seriously considered vetoing the bill.
"What's fair is fair. If you're going to tax cigarettes, you tax them and you tax them the same, whether they are in a package or out of a package, whether they are roll your own or they're pre-rolled," she said.
"Let me be clear, who pays for the health care costs associated with the addiction of this product and the resulting health care problems of people who use it? Taxpayers do," she said. "If they want to roll their own they are free to roll their own but they will pay the same tax. That to me is fundamental fairness."
The state Department of Revenue estimates Washington will collect roughly $13 million a year in new tax revenues as a result of the law -- and that's with a big predicted drop in sales in existing outlets.
Revenue analysts estimate 7.1 million packs of roll your own cigarettes are sold statewide each year. This is based on 20 cigarettes a pack.
In preparing a fiscal note for the new law, analysts assumed the price increase would cause a 45-percent drop in the number of cigarettes produced in existing outlets to 3.9 million packs.
If that comes true, many of the stores will close, Baba predicted.
"If my volume in my store goes down 50 percent because of the increase in price, I may not stay in business and if that happens at other stores, the Roll Your Own Northwest can't stay in business," he said.
But Baba remains confident the courts will undo the law.
He contends the change is at odds with terms of a settlement reached several years ago between major tobacco firms and states, including Washington. He says that at the least imposing this tax will put Washington at risk at losing some of its share of money its due from the agreement.
Gregoire, who led the negotiations that led to the national agreement, said that isn't true and nothing in the law conflicts with the settlement.
"I don't know what their lawyer is taking about," she said.
Baba isn't retreating.
"Round 1 went to the state," he said. "We believe we will win Round 2 in the courts."
Jerry Cornfield: 360-352-8623; jcornfield@heraldnet.com
Story tags » EverettTaxes

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