Wide differences in state-tax rates have created a thriving black market in cigarettes, with Arizona a top destination for smuggled shipments, according to a Tax Foundation study. New York is tops.
Increased tax rates and wide differences among the states have increased the black market for cigarette smuggling, with Arizona as the No. 2 state for inbound shipments, according to a new study.
The report, from the nonpartisan Tax Foundation, cited a lucrative and thriving black market that can lead to other problems.
Smuggled cigarettes make up an estimated 51.5 percent of consumption in Arizona, second only to New York, at 56.9 percent, according to the study. New York has the nation’s highest cigarette tax, at $4.35 per pack, based on 2012 numbers. That’s in addition to a tax of $1.50 a pack in New York City.
New Mexico (48.1 percent), Washington (48 percent) and Wisconsin (34.6 percent) had the next-highest rates rates of inbound smuggling as a percentage of consumption.
Outbound smuggling is most common in New Hampshire, Wyoming, Idaho, Virginia and Delaware, states where cigarettes can be purchased at a lower cost and smuggled elsewhere. Nevada (80 cents a pack) and Colorado (84 cents) are the states with the lowest cigarette taxes per pack in the Southwest.
“Dramatic increases in state cigarette taxes over the years have led to increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states,” said Tax Foundation economist Scott Drenkard, in a statement. “Growing cigarette-tax differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise.”
In addition to lost state-tax revenue, smuggling activities also can include counterfeit state-tax stamps, counterfeit versions of legitimate brands, hijacked trucks and the bribing of officials who turn a blind eye to illegal shipments, said the report.
The Tax Foundation study relied on a statistical analysis of data by the Mackinac Center for Public Policy to estimate smuggling rates for each state.
Missouri had the nation’s lowest cigarette tax, at 17 cents a pack.
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