Tobacco retailer sues state over classification as cigarette manufacturer
The owner of a Rochester variety store and two Seabrook tobacco shops is asking a judge to determine whether the presence of cigarette rolling machines in his store classifies his business as a “cigarette manufacturer.”
Signal Variety, Inc. is a tobacco retailer that owns and operates Signal Street Variety Store in Rochester and the Tobacco Depot and Cigarette City, both in Seabrook. Company President Richard Rigazio has filed a lawsuit in Strafford County Superior Court against Attorney General Michael Delaney and Commissioner of Revenue Kevin Clougherty regarding the state’s position that cigarette rolling machines in one of the Seabrook stores classify the company as a cigarette manufacturer that should be held to the same standards and requirements as other manufacturers.
The lawsuit explains customers purchase loose tobacco and hollow paper cigarette “tubes” and pay a separate fee to “rent” a rolling machine. The lawsuit likens it to what occurs in a Laundromat when a consumer pays a fee to use a washer or dryer.
“The sale of loose rolling tobacco by the ounce, related quantities of tubes and rolling machines to individual consumers has always been quintessentially and archetypically retail,” the lawsuit states.
The in-store, consumer-operated machines are a recent retail market phenomena and “the State has taken the position that the installation of these machines transforms a retailer into a cigarette manufacturer,” the lawsuit says.
A “Master Settlement Agreement” arose from a mid-1990s lawsuit more than 40 states, including New Hampshire, brought against the four largest cigarette manufacturers, the lawsuit explains. In exchange for annual payments in proportion to their market share and restrictions on future advertising and marketing, the large manufacturers were granted some relief in that manufacturers not part of the MSA are required to place in escrow for 25 years an amount roughly equivalent to the per cigarette MSA payments made by the four largest companies, according to the lawsuit.
“This has the natural and fully intended consequence of raising their costs so that any competitive advantage … is reduced,” the lawsuit says.
The lawsuit claims the arrangement violates the New Hampshire Constitution and Signal Variety petitions the court to prohibit the Attorney General from enforcing the escrow on its operations. Signal Variety claims it is not a tobacco manufacturer or a wholesaler. The lawsuit claims that for MSA purposes, rolling tobacco is already considered a fully manufactured cigarette and the escrow obligations therefore fall on the “roll your own tobacco” manufacturers.
The cigarette and tobacco tax is also taken up in the lawsuit. The state imposes a tax of $1.78 on each pack of 20 cigarettes. Effective June 10, the tax rate for tobacco products other than cigarettes and except premium cigars raised from 48.59 percent to 65.03 percent of the wholesale sales price, according to the Department of Revenue website.
“Signal Variety purchases rolling tobacco only from licensed wholesalers who have paid the state tobacco tax for the product. It sells the rolling tobacco to consumers at a price that takes the state tobacco tax into account,” the lawsuit states. “The Department of Revenue is apparently investigating the question of whether the same tobacco should be taxed a second time as cigarettes once consumers roll it in Signal Variety’s machines. The tobacco would be subject to double taxation if, and only if, Signal Variety is deemed to be a ‘manufacturer’ for state tobacco tax purposes.”
The lawsuit asks the court to find that cigarettes customers roll from loose rolling tobacco not be subject to the cigarette tax in addition to the tobacco tax.
When reached Wednesday, Rigazio declined to comment and referred all questions to his attorney, Andrew Schulman of Bedford. Schulman said the case is in response to a lawsuit the Attorney General’s office has filed against Signal Variety in Merrimack Superior Court.
He declined to speak about the case further since it is a pending matter. He did note it is similar to another case the state filed against North of the Border Tobacco, LLC and Roll Your Own, LLC.
In documents from that case, the Attorney General argued the defendants are involved throughout the manufacturing process and are therefore the manufacturers regardless of who turns on the machine or whether the customer brings his or her own materials to the machine.
In an order dated May 14, Merrimack Judge Larry Smukler found that “the process of selling loose untaxed tobacco, which is then immediately rolled into cigarettes retained by the customer in cigarette rolling machines conveniently located on the premises, is clearly a subterfuge to circumvent statutory requirements.”
The judge ordered North of the Border Tobacco to refrain from allowing customers to use the machines in conjunction with pipe tobacco, or else make required escrow payments.
Attempts to reach representatives of the Attorney General or Department of Revenue Wednesday were unsuccessful.
Court documents indicate a temporary hearing date of Aug. 19, with an appearance date targeted from Sept. 14.