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Ciggy Shack Owner Not Rolling With 'Roll Your Own' Cigarette Regs

The Wisconsin Department of Revenue warns businesses with cigarette-rolling machines that they need proper manufacturers permits to operate — or face penalties.

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. 

Benjamin Riche September 29, 2011 at 09:18 PM
It's sickening when government uses its power to destroy business and attack free enterprise. Governor Walker, put a stop to this nonsense!!!
Steve September 29, 2011 at 10:01 PM
Another opportunity for Walker to make me proud and put another end to the big government liberals.
Craig September 29, 2011 at 10:10 PM
I couldn't agree more! Attacking small business at a time like this is terrible. This is putting food on the table for hundreds of families in Wisconsin. Avoiding the taxes on manufactured smokes is no different than legally obtaining a refund at tax time. GE didn't pay taxes due to loopholes- but it was legitimate. The Ciggy Shack is legitimate also, and is doing a service to our community. This is all natural tobacco, no fillers, no junk additives like manufactured smokes have. Name brand cigarettes have only 20% tobacco, the rest is fillers and additives. Government has once again screwed the little guy- who will they go after next? Guys with Bio Diesel machines in the garage? Home Brewers? Mom and Pop vegetable stands? Pumpkin farmers? Governer Walker please step in and stop this nonsence! Shutting 30 Wisconsin stores down is not a good example of "Wisconsin is open for business"! In the meantime, leases still have to be paid on these businesses. There is utilities costs. Don't forget the cost to the families who lost their income due to this- who will support them and their bills? As a business owner, you can't collect unemployment. These families should immediately qualify for Badger Care at the very least....Thanks for the added burden, BIG GOVERNMENT. Alberta and Scott- are you listening?
Cheryl Krueger-Peters September 29, 2011 at 10:47 PM
Thanks for your Support!!! the staff of the Ciggy Shack
Katie Comens September 29, 2011 at 11:32 PM
Abviously Wisconsin is against small business owners! I'm along side you with your fight!
Cheryl Krueger-Peters September 30, 2011 at 02:11 AM
http://peoplesrepubmadison.wordpress.com/2011/09/29/vicki-mckenna-nails-it/
Jay Sykes September 30, 2011 at 05:44 AM
I guess you have a trip to the home improvement retailer in your future..... Time to subdivide your shop with some drywall and a door. Sell the rolling machines to your kids... you know, the whole separate legal entity thing.... sublet them the space too. Maybe (your kids) have to charge a buck or two per carton for using THEIR LLC's machines, laundromat vending machine style.
Joann Janssen September 30, 2011 at 01:34 PM
Once again the state of WI. has cut off their nose to spite their face. Now you will get NONE of my cigarette or tax money. A 3hr. trip to Indiana is in order. Sorry for Kent and his family, they are great people!
Craig September 30, 2011 at 02:32 PM
Sales tax on RYO smokes is still better than NO tax on smokes from out of state! Is Wisconsin OPEN FOR BUSINESS or not? Mr. Walker: I voted for you once....fool me once shame on you, fool me twice- shame on me.
mark grall September 30, 2011 at 04:01 PM
LEAVE THE SMALL PEOPLE OUT OF THIS AND MOVE ON TO BIG THING LIKE GAS PRICES. AND JOBS IN WISCONSIN. YOU PICK ON SOMETHING THIS LITTLE . MOVE ON WALKER. AND LEAVE THE SMOKE SHOPS DO THERE THINK
Unions_NO September 30, 2011 at 04:10 PM
Eventhough I despise cigarettes personally and detest the smell, I respect and recognize your right to run a small business in this (supposedly) free country. The State is obviously reaching on this one. Good Luck and I will be coming in to sign the petition.
Unions_NO September 30, 2011 at 04:11 PM
Hmmm, I am from Indiana and go home regularly. Maybe I need to befriend more smokers? :0)
patchreader 123 September 30, 2011 at 05:51 PM
Craig: Well stated.
patchreader 123 September 30, 2011 at 06:04 PM
FYI: here's the press release and letter from Wis Dep of Rev: http://www.revenue.wi.gov/news/20110923_01.pdf
patchreader 123 September 30, 2011 at 06:20 PM
Here's the state law relating to cigs. & tobacco. https://docs.legis.wisconsin.gov/statutes/statutes/139/II/30#/statutes/statutes/139/_000028 Cig taxes (sec. 139.30 - 139.46) do not appear to cover roll your own, hence the voluntary nature of the Dep of Rev's request? Not sure how the tobacco products tax (sec. 139.75 - 139.86) applies. This should give the business owners at least a start in further understanding the matter. Hope it helps.
patchreader 123 September 30, 2011 at 06:26 PM
finally, am 620 (jeff wagner) covered the issue on his radio show this early afternoon today. perhaps the business owners can find a download of the program, should they be interested.
patchreader 123 September 30, 2011 at 06:42 PM
radio podcasts fyi regarding above-post http://www.620wtmj.com/podcasts/
Benjamin Riche September 30, 2011 at 10:34 PM
I am a supporter of Walker. I think that his supporters need to make sure that this is brought to his attention and that this is stopped. Also, it might be a good idea to bring this issue to attention of the Landmark Legal Foundation or a similar organization. These organizations bring legal fights against unconstitutional laws and regulation.
Jim Kube October 05, 2011 at 06:54 PM
All we are saying Governor, is, c'mon, give addiction a chance!
Plow Boy October 06, 2011 at 04:39 PM
I think it is back to leave the state to buy smokes.
sgrall October 11, 2011 at 01:43 PM
KENT YOU AND YOUR CREW DID IT, YOU ARE THE MAN. I HOPE YOU CAN STAY OPEN FOR A LONG TIME AND EVERYONE LEAVES YOU ALONE. SO YOU CAN DO YOUR THING. YOU ARE NOT HURTING NO ONE. YOU ARE HELPING ALL OF US, YOU DON'T MAKE US COME IN YOU STORE. WE DO IT BECAUSE WE WHAT. THANK'S AGAIN
Dan Harper December 05, 2012 at 09:35 PM
Kent is back in business
Cheryl Peters December 06, 2012 at 12:49 AM
If your interested in learning more about what's happening with RYO visit The Assembly Room Inc. webpage, things have changed a bit as to how and where.

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