Anonymously 'squeal' on tax cheats
Tax moves to make in May 2011

Smoking out cigarette smugglers

As states struggle to come up with as much money as possible to balance their budgets, many are turning to hikes in existing taxes, noticeably tobacco levies.

Cigarettes_skodonnell_iStock_000016046440XSmall[1] The Mackinac Center for Public Policy reports that from 2007 to 2010, 27 states raised their cigarette taxes.

And that has led to an increase in organized cigarette smuggling.

According to Mackinac, the five smuggling destination states with the highest cigarette smuggling rates last year were:

  • Arizona, 51.8 percent of the state's total consumption
  • New York, 47.5 percent
  • Rhode Island, 40.5 percent
  • New Mexico, 37.2 percent and
  • California, 36.3 percent.

Not only has cigarette smuggling become more prevalent, it's increasingly dangerous.

Larry Penninger, acting director of the tobacco diversion unit of the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, told USA Today that there is so much illicit money to be made that some drug and weapon trafficking organizations are adding tobacco to their product lines to boost profits.

Why the illegal expansion?

In low-tax states such as Virginia, where cigarettes cost about $4.50 a pack, Penninger noted that smugglers can sell a smuggled truckload (typically 800 cases) of the cheaper smokes in New York, the state with the country's highest tobacco taxes, at $13 a pack.

Nationwide, cigarette smuggling is estimated to cost states and Uncle Sam around $5 billion a year.

N.Y. files suit against smugglers: It's not just G-men who are looking to snuff cigarette smuggling. New York City officials, tired of losing tobacco tax money, are fighting back, too.

New York City has filed a federal lawsuit against 32 residents it accused of ordering online thousands of cartons of cigarettes and reselling them illegally between 2003 and 2009, thereby avoiding payment of millions of dollars in city cigarette taxes.

Also named in the suit is Chavez Inc., a Kentucky-based tobacco dealer that sold cigarettes over the Internet to the alleged illegal N.Y.C. resellers.

The city, which has a $1.50-a-pack tax -- that's in addition to the state's $4.35 per pack tax and the 61-cent per pack sales tax -- is seeking $6.5 million in lost revenues on 437,721 cartons of cigarettes.

The Big Apple also wants $13 million in penalties.

Unintended cigarette tax consequences: The smuggling of cigarettes is just one of the unintended consequences of tobacco taxes.

The higher cost of tobacco products often prompts smokers to quit.

That's a good thing for the health of the new nonsmokers. It also should save governments big bucks on long-term health care costs.

But in the short-term, it poses a budget problem. Fewer smokers mean less tobacco tax collection.

These sin taxes, however, are too tempting for many states to ignore. Legislatures in Alabama, Maine and Louisiana are the latest to consider tobacco tax hikes.

Don't be surprised to see more states join them in pushing up the price of a pack of cancer sticks via higher taxes.

Cigarette boxes photo by skodonnell via iStock

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Thank you, it's been very interestingly. I agree with the comment mandyv. ...they create black markets!


Disproportionate Tax is "theft". Governments get what they deserve, they create black markets and they know it!

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