From the U.S. Government Accountability Office, www.gao.gov

Title: Using a Commercial Roll-Your-Own Machine with Pipe Tobacco to
Make a Carton of Cigarettes

Description: A GAO employee uses a commercial roll-your-own machine to
make a carton of cigarettes with pipe tobacco, which has a lower federal
excise tax rate than most smoking tobacco products. Customers can save
money when using the machines to make cigarettes with pipe tobacco. As
manufacturers and consumers switch to lower-taxed tobacco products, GAO
estimates a significant loss in potential federal revenue.

Related GAO Work: GAO-12-475, Tobacco Taxes: Large Disparities in Rates
for Smoking Products Trigger Significant Market Shifts to Avoid Higher
Taxes

Released: April 2012

[First Screen] [Silence]

This video is part of a GAO report:

Tobacco Taxes: Large Disparities in Rates for Smoking Products Trigger
Significant Market Shifts to Avoid Higher Taxes (GAO-12-475)

[Second Screen] [Silence]

Using a Commercial Roll-Your-Own Machine with Pipe Tobacco to Make a
Carton of Cigarettes

[Description of bar chart "Changes in Federal Tax Rates" that appears at
the beginning of the audio]

The chart shows the federal tax rates for cigarettes, roll-your-own
tobacco, and pipe tobacco before and after the tax changes in 2009.
Before 2009, cigarettes were taxed at $19.50 per thousand sticks.
Roll-your-own tobacco and pipe tobacco, were both taxed at a rate based
on weight that was equivalent to $2.23 per thousand sticks. After the
tax change in 2009, taxes on the three products increased. Cigarettes
are taxed at $50.33 per thousand sticks, and roll-your-own tobacco is
taxed at a rate that is equivalent to $50.33 per thousand sticks.
However, pipe tobacco is taxed at a much lower rate that is equivalent
to $5.75 per thousand sticks, which is about one-ninth the rate for
cigarettes and roll-your-own tobacco. 

>>Under federal law enacted in 2009, pipe tobacco is taxed at a much
lower rate than roll-your-own tobacco or factory-made cigarettes.
Following the 2009 change in tax rates, many roll-your-own manufacturers
shifted to pipe tobacco with minimal changes to the products and
consumers substituted pipe tobacco for use in roll-your-own cigarettes.
Commercial roll-your-own machines are also growing in popularity as more
customers are attempting to save money by using the machines to make
roll-your-own cigarettes with pipe tobacco.

This video shows a commercial roll-your-own machine located in a retail
smoke shop. Customers choose their pipe tobacco and cigarette tubes—with
filters. The clerk shows the customer how to insert the box of cigarette
tubes into the machine and hands the box of tubes to the customer to
insert herself. A machine like this one takes about 8 minutes to produce
200 cigarettes, the equivalent of a carton. Here the customer pours the
pipe tobacco into the top of the machine. The clerk instructs the
customer to push the start button on the screen. The machine begins by
breaking up only the tobacco that is clumped and dispensing it. Now the
customer adds the broken-up tobacco back into the machine and the clerk
instructs the customer to push the start button on the screen. The
machine begins making cigarettes.

[ Silence ]

The customer packs her carton of cigarettes from the machine. This
carton costs the customer about $25 (including federal and state excise
taxes and fees) compared to a carton of premium cigarettes that can cost
over $50. As manufacturers and customers switch to lower-taxed pipe
tobacco, GAO estimates a significant loss in potential revenue
collection.