Cigarette-Tax Evasion Costs New York, Illinois Millions
NYACS official urges enforcement; Cook County hires more investigators
Published in CSP Daily News
NEW YORK & CHICAGO -- Evidence of chronic cigarette-tax cheating has shown up in Illinois and New York in recent weeks.
In New York, cigarette-tax evasion costs the state at least $1.7 billion a year in tax revenue and 6,700 jobs, according to a new report from the New York Association of Convenience Stores.
Commissioned by NYACS, the economic study by John Dunham & Associates determined that in 2011, one of every two packs of cigarettes consumed in New York State escapes collection of New York State taxes.
“This is further proof that New York, which has the highest cigarette-excise tax in the nation, continues to suffer the corrosive economic and fiscal effects of the worst cigarette tax evasion in the nation,” said NYACS president James Calvin.
“This epidemic costs our state and local governments hundreds of millions of dollars in tax revenue annually, deprives tax-collecting retailers of legitimate business and siphons away private-sector jobs,” he said. “Moreover, it undermines the public health policy goal of deterring smoking.”
Among the findings in the New York report:
*In 2011, New Yorkers purchased 384-million packs of cigarettes from other states, Indian reservations, duty-free shops and military bases. If New York State tax had been collected on all of these purchases, it would have generated $1.67 billion in tax revenue. The actual tax-loss figure is probably even higher, because this estimate excludes black-market and counterfeit cigarettes, which are becoming more prevalent.
*If all cigarettes consumed in New York State were purchased in-state from tax-collecting sources, it would generate an additional 6,776 jobs and an additional $257 million in wages.
New York State’s cigarette excise tax rate is $4.35 per pack, the highest in the nation and 31% to 63% higher than surrounding states, making cross-border purchases lucrative. Tribal stores continue to sell cigarettes to non-Indian customers tax-free in defiance of New York State law. There is a huge flow of smuggled product from Virginia and other distant, low-tax states.
“If New York insists on having the highest cigarette tax rate in the country, it has a duty to taxpayers, small businesses and public health to aggressively prosecute the tax avoidance precipitated by such a policy, be it via the I-95 corridor, through Native American enterprises, over the Internet or in back alleys,” said Calvin. “We urge New York State to make it a top priority in 2013 to stem the tide of cigarette-tax evasion in the interest of maximizing tax revenue, employment, economic growth, and community health.”
Meanwhile outside Chicago, Cook County, Illinois, investigators have been raiding stores across the county that have been ripping off taxpayers of millions of dollars by selling cigarettes without proper taxes, according to a CBS2 report.
A recent raid of a Berwyn store found only four of more than 200 packs of cigarettes confiscated by the Cook County Department of Revenue Compliance Division Investigation Unit had the required Cook County tax stamp.
“For every pack that is sold without the county tax stamp, there’s $2 lost,” Cook County Revenue Department investigator Timothy J. O’Connor told CBS2. “You’re talking $400 right there alone.”
Investigators with the Cook County Department of Revenue joined forces with officers from the Cook County Sheriff’s Office to conduct the raids. About 800 raids take place each month.
“Roughly a quarter of them result in confiscations,” Cook County Board President Toni Preckwinkle said. “In the last fiscal year, it was a loss of $6 million. Six-million dollars would make a great deal of difference to our healthcare system, or to our criminal justice system.”
Retailers must buy cigarettes from registered wholesalers that affix the tax stamp. Investigators have found retailers often buy cigarettes out of the county, or even out of state, to avoid the tax and make extra money, according to the report.
At the Berwyn store that was raided, tickets were issued totaling more than $8,000 in fines. Investigators said the location is a repeat offender.
O’Connor said repeat offenders keep breaking the law, because it’s so lucrative to avoid the county’s cigarette tax. “You’re making millions of dollars by selling unstamped cigarettes,” he said.
In another raid, investigators issued more than $13,000 in fines and found unstamped cigarettes behind the counter in a safe.
This year, the county has issued fines totaling more than $1.3 million. The Cook County Department of Revenue plans to hire more investigators in 2013 with the goal to carry out even more raids.