Albany

The state Department of Taxation and Finance announced the arrests of 10 people in raids of "roll-your-own" cigarette shops where pre-rolled, untaxed cigarettes were allegedly sold.

The 12 establishments raided in the Capital Region and Hudson Valley include Tobacco House of Juan in Westgate Plaza in Albany, Tobacco House of Xin in Ballston Spa and Tobacco House of EA in Colonie.

Among the equipment and products seized were cash, roll-your-own cigarette machines, point-of-sale computers and more than 1,600 pounds of untaxed tobacco, plus hundreds of cartons of bootleg cigarettes, the agency said.

The raids were conducted by the Tax Department, the State Police, the Department of Homeland Security and local police departments following undercover purchases of untaxed cigarettes earlier this year.

Suspects were charged with illegal possession of the untaxed cigarettes for the purpose of sale, and/or possessing untaxed tobacco. The agency said untaxed cigarettes can retail for almost a one-third of the price of name brands with tax stamps.

In a statement, state Tax Commissioner Tom Mattox said the defendants allegedly "undercut other merchants, cheated the state out of tax revenue," and put at risk the stream of payments the state receives under the 1998 Master Settlement Agreement with tobacco companies — "payments that are vital toward funding health care and smoking prevention programs."

Roll-your-own shops attempt to use a legal loophole in tax law by providing loose tobacco for customers to roll themselves. Many have recently tried to steer clear of tax enforcement by transforming into tobacco "clubs" that rent their rolling machines to members.

The strategy has earned the ire of state tax officials. The shops are already unpopular with cigarette companies and the convenience stores that sell their products, who view them as competition. The vendors argue that roll-your-own shops should be taxed and regulated as cigarette manufacturers.

Zhuying Chen of Albany's House of Juan and Cai Lin of Colonie's House of EA were each charged with two class E felonies. There were no arrests at Tobacco House of Xin in Ballston Spa, although 10 cartons of untaxed cigarettes were seized.

The three Capital Region stores could not be reached for comment.