Much has been written about the so-called “Baucus amendment” to the $109 billion federal transportation bill. The amendment, ostensibly designed to provide financing for rural schools, would classify tobacco stores that offer in-store cigarette rolling machines as “manufacturers of tobacco products” under the Internal Revenue Code. The legislation would thereby require the store owners to obtain federal permits and to pay additional taxes. But the amendment also presents additional, perhaps unintended, consequences.
The amendment has cleared the U.S. Senate. The parallel version of the transportation bill passed by the U.S. House of Representatives did not contain the language applicable to cigarette rolling machines. The respective chambers are meeting this week to attempt to iron out the differences between the two bills.
The “Baucus amendment” expands the definition of a “manufacturer of tobacco products” to include “any person who for commercial purposes make available for consumer use (including such consumer’s personal consumption or use . . .) a machine capable of making cigarettes, cigars, or other tobacco products. A person making such a machine available for consumer use shall be deemed the person making the removal [i.e., subject to additional taxes for finished cigarettes] with respect to any tobacco products manufactured by such machine.”
Although proponents of the legislation state that it is designed to force retailers owning the store-based machines to pay higher taxes and become federally permitted, the actual language of the bill has a much broader impact by also applying to home-based machines.
The language applies broadly to anyone who “makes available for consumer use” any machine “capable of making tobacco products.” The language then goes on to make the person who “makes available” the machine — i.e., the retailer — liable for the taxes for any cigarettes produced by the machine. This language applies equally to sales of tabletop machines (both manual and electronic) designed for home use. A person who sells such machines to consumers “makes available” a machine that is “capable of making tobacco products.” The retailer selling the home-based machine would be liable for all taxes produced by the consumer who bought the machine. The retailer selling the tabletop machine would also have to become federally permitted.
It is not clear whether this is the intended consequence of the Baucus amendment, but if the law passes as written, it would have a significant and negative impact on the entire roll-your-own industry, and not just the store-based machines to which most of the attention has focused.
For questions and/or comments, please contact Bryan Haynes, Troutman Sanders Tobacco practice partner, at 804.697.1420 or by email.