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updated 12/20/2011 6:26:26 PM ET 2011-12-20T23:26:26

A company that was helping New York smokers avoid high taxes by having them roll their own cigarettes on machines in the store has agreed to shut down after being sued by the city.

New York City's Law Department announced Friday that Island Smokes, which had two tobacco shops in the city and was based on Staten Island, would shut down Feb. 1 in order to resolve a lawsuit filed in late November.

A lawyer for the company said it would have been too expensive to fight the case.

"It really was a business decision. It's the old adage that you can't fight City Hall," said the attorney, Jonathan Behrins. "From a lawyer's perspective, it was a very winnable case, and something I would have loved to take on. But fighting it alone against an army of lawyers and unlimited funds ... the prospects were not that good."

Island Smokes was one of a number of "roll-your-own" shops that have opened up across the country in recent years to take advantage of a perceived loophole in state and federal tax laws.

The stores sold cigarettes at drastically reduced prices — sometimes as little as $4 for a pack that could normally cost $13 — because they sold customers loose tobacco, at a tax rate that was just a fraction of the rate set for a commercially made pack.

Patrons were then directed to machines in the store, which converted the loose tobacco into finished cigarettes. At Island Smokes locations, the machines were relatively slow, turning out a carton in about 45 minutes, but some roll-your-own stores have high-speed rollers capable of churning out a carton of 200 cigarettes in about eight minutes.

New York City officials had argued in a lawsuit filed in late November that the shops were engaged in tax evasion and violation of laws requiring every pack of cigarettes sold to carry a state tax stamp.

"The success of this lawsuit should serve as a reminder to others thinking of 'gimmicks' to skirt New York City's tough cigarette laws that the City will enforce those laws vigorously," the city's top lawyer, Corporation Counsel Michael Cardozo, said in a written statement.

City officials said that in recent weeks it has identified other roll-your-own shops that have recently opened, and sent them letters threatening them with legal action as well.

Similar legal fights involving the same types of shops are ongoing in several states, including West Virginia, Wisconsin and New Hampshire.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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