NEW YORK-- Last week, The Mackinac Center for Public Policy released a report chronicling the rate of cigarette smuggling in the United States, revealing what retailers in New York have long known: state-to-state smuggling has become a big problem. This especially true for higher taxed states like New York, which boasts both the highest state excise taxes in the country ($4.35 per pack) and the highest rate of smuggling (with 60.9% of all New York's cigarettes entering the state illegally).
"This is not news to tax-collecting New York convenience store operators, who have been plagued by cigarette-tax evasion for nearly a generation," Jim Calvin, president of the New York Association of Convenience Stores (NYACS), told Tobacco E-News.
The Midland, Mich.-based Mackinac Center has released smuggling reports in 2006 and 2009, in addition to its most recent report covering 2011. In 2006, the Mackinac Center estimated that New York had the fifth highest smuggling rate in the country as 35.81%. In 2008, New York's state excise tax on cigarettes nearly doubled, going from $1.50 to $2.75 per pack. In the Mackinac Center's 2009 report, New York rose to number two on the list, with a smuggling rate of 47.35%. State excise taxes rose again in 2010, going from $2.75 to the state's current $4.35. Not surprisingly, the 190% increase in state excise taxes from 2006 through 2011 catapulted New York to its title as the most smuggled state.
"At $4.35 per pack, New York State's cigarette excise tax rate is by far the highest in the nation and 31% to 63% higher than surrounding states, making cross-border purchases lucrative," Calvin said. "Tribal stores continue to sell cigarettes to non-Indian customers tax-free in defiance of New York State law, and there is a steady flow of smuggled product from Virginia and other distant, low-tax states."
Last month, this issue was addressed in an economic report commissioned by NYACS and conducted John Dunham & Associates. Among other things, the study found that cigarette tax evasion (from smuggling as well as tribal lands and internet sales) costs the state at least $1.7 billion a year in tax revenue and 6,700 jobs. Calvin also noted the smuggling epidemic "deprives law-abiding retailers of legitimate business, and undermines the public health policy goal of deterring smoking through hypertaxation."
(For more on the NYACS report, click here).
So what's the solution? As New Hampshire is currently the only state to lower its state excise taxes on cigarettes, it's unlikely the empire state will follow suit any time soon. Calvin believes it's up to New York to crack down on smuggling if it insists on having such high tax rates, stating the state "has a duty to taxpayers, small businesses, and public health to aggressively prosecute the tax avoidance precipitated by such a policy."