The State of Evasion
Published in CSP Daily News
Most N.Y. smokers buy at least some cigarettes tax free, study reveals
BUFFALO, N.Y. -- More than a third of New York smokers regularly avoid the state's high cigarette taxes by buying from Indian reservations, the Internet or duty-free shops, according to a study which concluded tax evasion has hampered the state's efforts to curb smoking, said the Associated Press.
The study for the state Health Department showed that just over 70% of smokers bought cigarettes from low- or no-tax sellers at least once in 2004, with 34% to 42% relying on those sellers "all the time" or "sometimes."
Indian reservations, [image-nocss] which as sovereign nations do not collect state tax, were the preferred source of cigarettes for 22% of smokers, followed by out-of-state or out-of-country retailers (12%), toll-free numbers (5.3%), duty-free shops (4.8%) and the Internet (2.6%), according to the findings.
The state in 2002 increased the excise tax on a pack of cigarettes from $1.11 to $1.50 to discourage smoking. The strategy has worked, researchers said, though it would be even more effective if smokers did not have access to cheaper cigarettes.
"Because higher prices have been consistently shown to reduce both the prevalence of smoking and cigarette consumption, tax evasion is eroding the effects of higher prices on smoking behaviors," the study by RTI International of Research Triangle Park, N.C., found.
The study said smokers who evade the excise tax may be less likely to try to quit and that the availability of cheap cigarettes works against efforts to discourage young people from taking up the habit.
The findings were part of a study made public last week, evaluating the state's anti-smoking efforts of the last few years. The study comes as legislators are pushing the George Pataki administration to recoup some of the hundreds of millions of dollars a year in tax revenues the state is estimated to be losing to Indian retailers.
On March 1, the state Department of Taxation & Finance is set to begin collecting the tobacco excise tax at the wholesale level, using a coupon system that would allow Indian retailers to continue selling tax-free products to tribal members, department spokesperson Tom Bergin said. "We're currently in the process of deciding how the proposal is going to work and develop the proper guidelines," he told AP Wednesday.
The Seneca Nation of Indians, with two western New York reservations and a host of online smoke shops, saw business boom as the state raised its taxes on tobacco products, though smoke shops have said business has been hurt by an agreement by major credit card companies earlier this year to refuse to handle online tobacco purchases. The agreement came after attorneys general and the federal Bureau of Alcohol, Tobacco & Firearms (ATF) said virtually all of the sales were illegal.
Off-reservation retailers say their reservation competitors have an unfair edge because they can offer cartons of cigarettes at up to $15 less.
The study for the Health Department found smoking among adults in New York state declined to an all-time low of 18.1% last year. Along with higher taxes, officials credited an effective anti-smoking campaign and the Clean Indoor Air Act, which in 2003 outlawed smoking in virtually all places of employment.
James S. Calvin, president of the New York Association of Convenience Stores (NYACS), told the Buffalo News in a separate report that the cigarette-buying trend statistics were stunning.
"This information reinforces the magnitude of the tax-evasion epidemic surrounding cigarettes in New York Statein particular in Western New York, where it is most pronounced, he said. NYACS has been trying to get the state to collect the taxes on sales of cigarettes from the reservation shops.
"There's a lot of tax evasion going on, particularly in Western New York, obviously because of the proximity of Indian reservations," Russell Sciandra, director of the Center for a Tobacco Free New York, told the newspaper. "And this is a big problem, because without this easy access to lower-priced cigarettes, there would be fewer people smoking."
Researchers found that if those smokers avoiding taxes had to pay full price for their cigarettes, more than 100,000 people statewide probably would stop smoking, Sciandra said.
But a Seneca Nation spokesperson dismissed the study's findings. "That's nonsense," Joseph F. Crangle, a lawyer who is the tribe's counsel, told the paper concerning the studys findings. "I really challenge those statistics. If that be the case, there'd be traffic jams out there."
The state study follows a 2003 survey by Roswell Park Cancer Institute, which found that 51% of smokers in Erie County and 78% in Niagara County regularly buy cigarettes from Indian retailers, said the report.
In other findings, the study found equality between the sexes when it comes to women and men smokers who regularly buy tax-free cigarettes. It also found that the older a smoker, the more likely to avoid taxes; 47% of those older than 65 buy their cigarettes all or some of the time from tax-free sources, compared with 29% of smokers between the ages of 18 and 24.
White smokers are more likely than blacks to buy tax-free, as are smokers with college degrees, compared with smokers who never graduated from high school.
The study comes as New York resumes plans to try to collect taxes on Indian sales of cigarettes to non-Indians, the report said. The state legislature, which previously passed tax-collection laws only to see them rebuffed by the Pataki administration, this year passed another new law requiring that the state tax department, beginning next March 1, collect the tobacco excise tax at the wholesale level.
Seneca merchants say they are protected from the taxation attempt by treaty rights more than 200 years old. But non-Indian retailers say that the state is losing several hundred million dollars a year to Indian tobacco sales and that the U.S. Supreme Court has already given approval for New York to collect the taxes.
"We look forward to the dawn of that new era of tax fairness," Calvin said of the March 1 tax-collection deadline.
Click here to view the study.