For 18 years, Kent Krueger worked a blue-collar job in a printing company until he was laid off two years ago. And after a fruitless job search, he invested his children’s college funds to open the Ciggy Shack on Appleton Avenue in Menomonee Falls in May.
“I was on the job search for two years, and I couldn’t find a job — so I bought a job,” Krueger said.
But now, his livelihood is on the line after receiving a notice Monday from the Wisconsin Department of Revenue, which ordered him to immediately cease operating his tobacco rolling machines because they violate state law.
Krueger sells tobacco, papers and filters out of the Ciggy Shack, and also rents out three large “Roll Your Own” machines that roll cigarettes and box them up for customers. A customer can build his or her own box of smokes, equivalent to a carton, for about $30 — avoiding significant tax charges.
That’s less than the $35.21 just in taxes charged on a typical carton of 200 cigarettes purchased at a convenience store. Roll your own tobacco is taxed at $24.79 per pound at the federal level, and a pound yields approximately two cartons worth of homemade cigarettes.
That’s why the DOR is saying “not so fast.” The DOR put Krueger on notice, saying he was not only a distributor of cigarettes, but a manufacturer as well. However, Krueger claims he simply sells customers the ingredients for smokes, and provides a convenient and fast way for them to roll them — something they would do at home on their own anyways.
According to a notice issued by the DOR Sept. 23, any tobacco retailers that either operate a rolling machine, or allow their customers to operate the machine, are considered both a cigarette manufacturer and distributor. As a result, the DOR is asking these tobacco retailers to obtain necessary permits to ensure their cigarettes receive the state’s tax stamp before leaving the store.
“What customers would be doing at home is rolling them one at a time. Instead, they are making large quantities of cigarettes at one time, and in doing that, they need both manufacturing and distributing permits and comply like other manufacturers are doing,” said DOR spokeswoman Stephanie Marquis. “We are making them aware of the laws and asking them to voluntarily comply.”
Krueger, and roughly 80 other businesses like his across the state, has 30 days to obtain the necessary permits or remove the $35,000 machines from his business. Otherwise, he could face fines, permit revocation, imprisonment or seizure of personal property.
The notice is a serious threat to the future of his business, and his family. Krueger has invested much of his family’s future into $100,000 worth of machines.
An attack on the free enterprise
To Krueger, renting a cigarette-rolling machine is no different than buying whole-bean coffee and grinding it at the grocery store, or brewing beer at home.
“I don’t manufacture or distribute anything here. You rent the machine from me," he said. "It’s no different than rolling at home; it’s just faster here. This is a free enterprise business, and we are helping people save hundreds of dollars a month.”
Krueger said it isn’t fair to compare him to other cigarette manufacturers that employ machines that can roll 20,000 cigarettes a minute. His machines at the Ciggy Shack can roll about 25 per minute.
Although the rolling machines have been quiet, Krueger has been at the Ciggy Schack everyday collecting signatures from customers for a petition. He said he is joining other “Roll Your Own” business owners like him around the country who plan to fight back. He currently has 300 signatures in just two days.
“I will be hear meeting and greeting my customers everyday letting them know they have the freedom to roll their own smokes,” Krueger said.
Phil Carne, an authorized distributor of RYO machines, told the Maciver News Service that stores are still open, but the machines are just shut off. He said RYO lawyers are meeting with state officials to help resolve the issue. Carne said they are optimistic that the machines will be turned back on.
“Convenience stores and other retailers say we are cutting into their profits. This is free enterprise no doubt about it,” Krueger said. “This is small business creating jobs. This situation is more of a conglomerate being bullied by other convenience stores.”
Krueger said he enforces the law by restricting access to his store to people over the age of 18, has his proper permits, and pays his taxes.
A national issue
In October, the United States Alcohol and Tobacco Tax and Trade Bureau ruled that a business operating a cigarette-making machine at its premises is engaged in cigarette manufacturing, and must obtain proper permits.
Marquis said several other states are taking similar action to Wisconsin.
However, a U.S. District Court in Ohio filed a temporary restraining order preventing the federal bureau from enforcing the provisions outlined in its decision. In December, the temporary restraining order was replaced with a preliminary injunction until a resolution is reached on that appeal.