This is my final column as my tenure in the Senate nears the end. The baton is soon to be passed. I have often written about some of the various taxation issues. This week we visit that subject again to look at something of interest.
We often observe the lack of a clear cut path from introduction to passage to implementation. House bill 1138 passed out of both chambers and was signed by the Governor. The vote in the House was 47-20 and in the Senate the margin was 21-7. The numbers might lead one to think it was a partisan issue but that was definitely not the case. This piece of legislation was directed toward the use of Roll-Your-Own cigarette machines. Many were not even aware of the existence of such machines.
Sponsors of the bill argued that it was necessary to close a loop-hole. Current law allows a consumer to circumvent the payment of the proper amount of tax on the cigarettes being purchased. They do so by going to a store that sells bulk tobacco and paper tubes. They are than given access to one of these machines. The end result is the production of cigarettes very similar to the other cigarettes available on the market. Our state law says tax must be paid on all cigarettes sold. Payment of that tax is evidenced by the presence of an authorized stamp on each package. Our rate of tax is $1.53 per pack.
Passage of the bill put in place clarification as to definitions regarding the use of these Roll-Your-Own machines. It says that the use of such a machine is to be considered a manufacturing process. Any product coming out of the machine that contains tobacco and wrapped in paper will be considered to be a cigarette and is to be subject to the same taxes as apply to all other cigarettes sold in South Dakota. Proponents of the bill pointed out that tax on the bulk tobacco and paper amounts to only $2.39 per carton as opposed to the $15.30 tax on all regularly manufactured cigarettes.
I can remember the time when adults might carry a can of pipe tobacco and a pad of cigarette papers in their pocket. They could then roll their own one at a time. This bill does not speak to that practice. It does however define that the practice of using a machine capable of producing the equivalent of a carton of cigarettes in a matter of minutes should not be allowed to avoid paying their proper share of tax that has been established by the people of South Dakota.
A broad perspective would say one should first consider the cigarette tax in general. Many would agree that the present rate it is more designed to influence behavior rather than regulate the sale and distribution of the product or produce revenue for state government. No matter what the reason, the tax is currently written into our law. The next question then is whether it is fair for some consumers to be permitted to avoid a substantial amount of their tax responsibility. That is the same argument that is posed regarding the purchase of goods from out-of-state merchants who do not collect sales tax for our state.
Opposition compared the usage of the coffee grinder in the grocery store but it couldn’t overcome the apparent mandate issued by the public in the 2006 Initiated Measure increasing the cigarette tax to $1.53/pack. That measure passed with a 60.88% favorable vote.