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Smoke ‘Em If You Got ‘Em

by Christine Stuart | Jun 13, 2012 1:35pm
(1) Comment | Commenting has expired
Posted to: Town News, Norwalk, State Budget, Special Session, Taxes

Christine Stuart photo

Tracey Scalzi

Tracey Scalzi stood outside the House chamber most of the day Tuesday making last-minute pleas to lawmakers to leave her two roll-your-own smoke shops alone.

She knew it was an uphill battle, but it didn’t matter. Her business and reputation were at stake.

As she sat outside the House chamber behind red velvet ropes used to separate the lobbyists from the lawmakers, Scalzi, who is not a registered lobbyist, spoke to Rep. Patricia “Billie” Miller, D-Stamford, about the bill.

Miller said she was the one who invited Scalzi into the bathroom with her in May and introduced her to Rep. Lonnie Reed, who described being put off by Scalzi’s bathroom lobbying tactics. (Read more about that in the Branford Eagle)

“She was not lurking in the bathroom,” Miller said Tuesday. “I invited her in because I had to go and when Lonnie walked in I introduced them.”

On Tuesday, Reed said Miller made sure she knew what happened in the bathroom last month, but that’s not how she experienced it. Reed said Scalzi was in the bathroom lounge 45-minutes later when she went in to make a phone call and was fairly aggressive in trying to speak with her about the legislation.

Reed applauded Scalzi’s tenacity, but concluded that she’s a “distraction for a much bigger issue.”

“It’s a national juggernaut,” Reed said of the tax loophole discovered by the RYO stores. If the state doesn’t close the loophole it could lose hundreds of millions of dollars annually it receives from the four major firms that settled back in 1998.

But Scalzi argues she can’t possibly comply with being labeled a manufacturer because the RYO machines in her stores can’t stamp or label the cigarette cartons. The $5,250 manufacturing fee per machine may seem like something that wouldn’t put someone out of business, but it’s more than that.

“These stores are taking away revenue from other stores that sell stamped cigarettes,” Sen. Eileen Daily, D-Westbrook, said.

Daily doesn’t necessarily believe the claims it will put RYO stores out of business.

“To claim that it puts them out of business is something we must take and consider carefully. That’s a claim we hear about many, many of the bills we pass,” Daily said. 

It would simply force the stores to pay the same taxes as stores selling brand name manufactured cigarettes, Daily said.

During the Senate debate Tuesday, Sen. Len Suzio, R-Meriden, observed that if the fee is passed, “They would be paying the same taxes if they purchased a manufactured carton of cigarettes.”

“If this law is passed they contend it will force them out of business since it will no longer have any kind of competitive advantage,” he said.

Department of Revenue Services Commissioner Kevin Sullivan said the legislation requires the RYO shops to obtain a distributors, manufacturers, and sellers license.

Sullivan wasn’t necessarily convinced that a new licensing fee would put any of the shops out of business. However, it could change their profit margins, which may come from avoiding paying certain taxes.

During a recent conversation with Scalzi, Sullivan recalled “She said to me one day, ‘I can’t pay taxes. That’s how I make my money.’”

“If she could continue to sell cigarettes without taxation that’d be a small thing to do, but it’s the fact that you can compete without meeting the price of every other cigarette that allows her to make money,” he added.

Regardless, Sullivan said he’s happy to work with any shops that obtain a license to figure out how to comply with the law. 

A former smoker himself, Sullivan said there’s probably a market out there for the types of cigarettes and tobacco products she’s selling. He said the tobacco being sold in her store is different than the brands that people buy in convenient stores and gas stations and he observed that people like to customize things.

Unlike Vermont, Connecticut decided not to ban the RYO machines.

“We’re giving people the opportunity to become manufacturers,” Rep. Patricia Widlitz said Tuesday. “Or a little more time, if not, to develop another business plan.”

“It’s a burning issue and we need to address it now,” she added.

She said the RYO shops are undercutting other businesses that sell stamped cigarettes. By avoiding the stamp tax on cigarettes these RYO shops are avoiding paying the Tobacco Settlement in order to make a profit, Widlitz said.

She said that in playing this whole thing out, her biggest fear is losing the funds from the Tobacco Settlement if the state fails to close this tax loophole for these stores.

“I think that would be a serious blow to our state,” Widlitz said.

Rep. John Piscopo, R-Thomaston, argued that two more shops have opened up since the court’s Feb. 24 decision that said the state had no ability to tax them if the customers were the ones operating the machines.

“Enter at your own risk. I think that’s a bad statement for Connecticut businesses here, and I just think we should have been debating this bill alone maybe next session,” he said.

Widlitz said they are being as sensitive as they can to the RYO shops by pushing the effective date of the legislation out to Oct. 1.

Rep. Edward Moukawsher, D-Groton, said he thinks the language is “Draconian” because it will put people out of business. He said the federal investigation surrounding House Speaker Chris Donovan’s congressional campaign has just “muddied the water,” making people feel like they had to pass it.

“It’s neutralized everyone,” Moukawsher said Tuesday.

In the end, the giant budget bill that included language describing RYO shops as “manufacturers” passed 88-53 in the House, and 22-14 in the Senate.

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posted by: Noteworthy | June 14, 2012  12:24pm

At the next session, I will be lobbying the legislature to pass a law putting a tax multiplier on that businesses or partnerships that own 5 or more properties; and to remove the deductability of certain expenses related to those investments. I’d lay a wager that since that would affect Ms. Widlitz directly, she would squeal like a stuck pig. Oh, that’s different I’m sure she would say. Yeah right.