Report: High Cigarette Taxes Fuel Smuggling

Report: High Cigarette Taxes Fuel Smuggling

The Mackinac Center for Public Policy has released a new report indicating that high cigarette taxes fuel smuggling from lower-tax jurisdictions, which benefit from out-of-state buyers looking to save money on smokes.

According to the report, over 60 percent of cigarettes sold in New York are smuggled in from elsewhere. The state has the highest cigarette tax in the country, and hosts New York City, which levies its own high cigarette tax on top of the state rate. 

Meanwhile, in Rhode Island, which boasts the nation’s second highest cigarette tax rate, about 40 percent of cigarettes are smuggled.

Southern border states also make the list of those in which the proportion of smuggled cigarettes sold is high; proximity to Mexico, and cross-border commercial activity – licit and illicit – may explain this. 

However, in the case of many states on the list, trafficking of lower-taxed cigarettes from Virginia, North Carolina, and New Hampshire appears to be significant. In Virginia, cigarette taxes run at 30 cents per pack. 

In New Hampshire, the report says 27 percent of the cigarettes sold in the state leave its borders. The cigarette tax was cut in 2010, partly in an effort to capitalize on out-of-state buyers from higher-taxed states, including Rhode Island, heading to the Granite State to buy smokes.

The authors of the report note that in Maryland, a state that does not make the top ten list but still struggles with the sale of smuggled cigarettes, “a police officer… actually used his official patrol car, uniform and pistol to escort illicit cigarette shipments to their destination.”

The report concludes that politicians’ addiction to higher cigarette tax rates has helped to spur smuggling, and that “when smuggling profits are sky high, everyone seems to want a piece of the action.”