High Cigarette Taxes Embolden IL, NY Smugglers
In the wake of its recent hike in the cigarette tax rate, Illinois is encountering fresh problems with cigarette smuggling that could wipe out any possible benefit from the $1 per pack increase.
When Illinois Gov. Pat Quinn signed a bill adding another dollar a pack to the state's cigarette tax, law enforcement leaders knew they had their hands full.
John Chambers, head investigator for the Illinois Department of Revenue, says cigarette smuggling now rivals illegal drug smuggling, and street gangs are getting involved.
"Keep in mind this is very similar to drug activity, smuggling drugs, and there could be concealed compartments, false floors in the bed of a truck, much like drugs, all packed with cigarettes," Chambers said.
With Chicago, Cook County, and Illinois taxes all included, smokers now pay $4.66 a pack in taxes in Chicago. That's the second-highest cigarette tax in the nation, trailing only New York City at $5.85. People looking to make quick cash don't need to travel far to buy cheap cigarettes. Indiana's tax is just $0.995 a pack, and Missouri's tax is the lowest in the country at just $0.17. Chambers says cigarette smuggling is now as lucrative as drug smuggling, with much lower penalties.
A clerk at a tobacco shop in Hammond, Ind., less than a mile from the state line, says business has doubled since the latest increase began at the end of June.
"They come in and buy like 10, 15, 20 cartons at a time," said Jessica Kempke.
Selling cigarettes obtained from lower-tax jurisdictions has long been a problem in Chicago, specifically. A study conducted by Professor David Merriman of the University of Illinois at Chicago demonstrated that about three-quarters of all cigarettes smoked in Chicago did not bear tax stamps required for the sale of cigarettes in the city.
Opponents of the tax increase argued that it would only spur activity of this sort, while diminishing sales of cigarettes by Illinois retailers. However, the tax hike was passed in order to help fund a $2.7 billion hole in Medicaid funding, which now may persist due to the increased appeal for Illinois smokers of cheaper, smuggled smokes.
Meanwhile, in New York, where taxes run highest in the nation, a smuggling ring has been busted for actions that may have deprived the state of up to $3 million in revenue:
A New York prosecutor says five people are facing charges of illegal trafficking of untaxed cigarettes.
Rice says a properly taxed carton of cigarettes in New York is about $90. The defendants were paying approximately $32 per carton. She says that equals a loss to New York taxpayers of $3 million.
This is only the latest such incident to be reported in New York, where cigarette smuggling remains an ongoing concern.