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High Cigarette Taxes Turn Smokers Into Smugglers

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The conclusion from a recently released report on cigarette taxes and cigarette smuggling from the Tax Foundation may sound obvious. The Washington, D.C.-based think tank found that when states impose high excise taxes on cigarettes, smokers tend to avoid buying cigarettes there. Instead, they buy them in low-tax states -- smuggling their smoky contraband across state lines.

No shocker there, right? However, what may surprise you is the foundation's revelation of the size of the phenomenon.

The States That Bum the Most Out-of-State Smokes

At $4.35 a pack, New York levies the highest excise tax on cigarettes in the land. It has nearly tripled the size of its excise since 2006 and now boasts an excise tax almost precisely three times the national average ($1.46 a pack).

The result: the majority of cigarettes smoked in New York are contraband. According to the study's data (which goes through 2012, the most recent year for which complete data are available), 56.9 percent of New York's cigarettes were smuggled into the state, dodging New York excise taxes.

A majority of smokes are smuggled in Arizona as well (51.5 percent), and New Mexico and Washington state (which tax smokes at $1.66 and $3.025 a pack, respectively) are not far behind. And they may not be alone.

The study shows that smuggled smokes make up 25 percent or more of cigarettes consumed in 12 states. And with the foundation reporting that 30 states, plus the District of Columbia, increased cigarette taxes between 2006 and 2012, the trend is moving toward higher cigarette taxes -- and more cigarette smuggling into states doing more of the taxing.

Smuggled From Where?

So where are all these contraband smokes coming from? In the United States, roughly 15 billion packs of cigarettes are sold each year. Some come from international globetrotters arriving in-state via duty free. As for the rest, the six biggest supplier states for cigarettes (the places where smugglers buy their contraband smokes before taking them back home) appear to be:
  • New Hampshire -- 24.2 percent
  • Wyoming -- 22.3 percent
  • Idaho -- 21.3 percent
  • Virginia -- 21.1 percent
  • Delaware -- 20.9 percent
  • West Virginia -- 20.6 percent
In these six states, at least 1 in 5 cigarettes sold in the state isn't consumed there -- so these places are where the cigarettes are coming from. (Note that Altria's (MO) headquarters lie in Virginia. North Carolina, which is home to twin tobacco heavyweights Lorillard (LO) and Reynolds American (RAI), may also be a prime source for smokes -- but the foundation didn't provide full data on the state in its study, so it's hard to say for sure. Other jurisdictions with incomplete data are Alaska, Hawaii and the District of Columbia.)

Curiously, while cigarette excise taxes are pretty low in four of these six states, in two of them -- Delaware and New Hampshire -- the respective per pack excise taxes of $1.60 and $1.78 are a bit higher than the national average of $1.46.

The attraction of smuggling cigarettes bought in these states can be explained by geography. Delaware is surrounded by tax-crazy states Maryland, Pennsylvania and New Jersey. New Hampshire abuts even higher-above-average taxers Vermont, Maine and Massachusetts.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.​


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bchrist751

Tax increases never product the revenue that Liberal politician expect....I wonderful way?

Idiots!

April 24 2014 at 10:38 AM Report abuse rate up rate down Reply
chzyrider

Non-smokers are far too eager to vote for increasing taxes for a product they do not consume as it does not directly affect them. States are losing revenue due to peer pressure for others to quit using this product, yet continue increasing taxes to compensate and still relying on specific consumers of that product to continue providing that revenue through retail sales to fund vital programs benefiting many citizens.

Why don't the non-smokers wish to contribute their fair share as well towards helping schools and all those other programs directly funded by tobacco taxes? Why not tax a far more favorable product that a majority of citizens use daily and have no intentions of quitting nor experience any peer pressure to quit consuming?

Imagine the vast tax revenue potential of taxing every cup of coffee of the millions sold daily at restaurants and specialty shops. Applying the same equivalent tax to your specialty cup of coffee should not make one quit consuming that product and therefore equally contributing towards the betterment of those involved on those government programs seeing diminishing revenues. After all that's what the non-smokers want is for smokers to quit, so they will need to seek a replacement tax revenue.... perhaps it should sought be from coffee consumption.

April 24 2014 at 10:20 AM Report abuse rate up rate down Reply
LA is Best

"At $4.35 a pack, New York levies the highest excise tax on cigarettes in the land." This is PURE Libralism on parade.......tax. tax, rax so they can attract more government dependent people!

April 24 2014 at 8:44 AM Report abuse +1 rate up rate down Reply
1 reply to LA is Best's comment
bchrist751

except, the increase revenue to support an ever growing liberal dependent class is not their because of the high taxes...

April 24 2014 at 10:41 AM Report abuse rate up rate down Reply
SHIRLEY

If cigarettes are so bad for people and they kill more people then cars do. How is it they are not Banned from the United States? Oh thats right its the TAXES.

April 24 2014 at 7:46 AM Report abuse rate up rate down Reply
Boatnmaniac

There are many people who stupidly think that raising taxes on cigarettes will cause most people to quit smoking. While it might cause a little decrease in the number of smokers, the higher the taxes go the more smokers will turn to buying smuggled cigarettes creating a whole new market for crime. And that market is already in play with prior drug dealers now becoming cigarette smugglers. They do so because they can now make more money smuggling cigarettes than they could selling drugs...and the risk of getting caught is lower and the penalty when they are caught is much, much less.

April 24 2014 at 6:59 AM Report abuse +1 rate up rate down Reply
barryaclarke

You can go to an Indian reservation and buy cigarettes totally tax free which is about 50% of retail. A while back I saw a website where they would ship them to you. But, this isn‘t the brightest idea because it leaves a paper trail to your doorstep.............

April 24 2014 at 12:07 AM Report abuse rate up rate down Reply
laurie

Hello...They are just figuring this out!!!! LMAO!!! This has been going on for yeeaarrrsss....Um..here in AZ we just go to the Indian Reservations where they are at least 1/2 off...Or if were close to the New Mexico Border they are alot cheaper there too!! I know for fact the abundance of Snowbirds bring them in from other states to AZ also. It's simular to when we went up to Montana years back with CASES of Alcohol for Friends who lived there. Alcohol is twice as much in the northern border states.

April 23 2014 at 11:42 PM Report abuse +1 rate up rate down Reply
Thomas

$8.75 a pack in Anchorage Alaska

April 23 2014 at 11:26 PM Report abuse rate up rate down Reply
1 reply to Thomas's comment
pearlnestor1

I know, which is why I switched to rollies. Tried electronic cigarettes but they don't last so long for the price. Still they are pretty good. As more people use the electronic cigarettes and the states lose out in revenue because real tobacco isn't bought, they are going to invent problems with them. Just watch, they will find a way to tax them just like they do real tobacco.

April 24 2014 at 12:33 AM Report abuse +1 rate up rate down Reply
DOUG

Screw the government. I'm gonna grow my own tobacco and make my own!!!!!

April 23 2014 at 11:04 PM Report abuse +2 rate up rate down Reply
Warrior

When I was a kid, I worked on a service truck as a helper with a guy that always had an angle and something going on the side every chance he got. He probably made more cheating the system, than by doing his actual job. If nobody was paying close attention to the stock room, he would grab a few new items for sales on the side, with 100% profit for himself. He had a route that crossed from the Chicago, IL area into northern Indiana. He would fill up the truck with gas every day at the company pump...plus a couple of extra 5 gallon gas cans...because he had a route that covered so much area. On the way to Indiana, he would make a detour to his house for a quick pit stop...literally. He would fill up his wife's car with gas from the cans, pick up any other empty cans laying around...like for filling the lawn mower or generator, for swap out at the company gas pump the next day. Then he would load up a couple cases of Illinois booze and take it to a store in Indiana, where he would swap Illinois booze with cheap tax, in exchange for Indiana cigarettes with cheap tax. When we got to a work site...well, it's best for everyone to have everyting locked up or nailed down, otherwise it went into his truck. He would even grab electrical wiring from old abandoned buildings, copper, leads pipes etc. on the trip home. He would use some of the gas for pouring on the pile of electrical wire in the back yard to burn off the insulation prior to going to the scrap metal dealer. This doesn't even begin to cover the lines he used to give the customers to cheat them, or the company management that he made believe he was God's gift to the company because of haw he was such a money maker for them, and an "exmplary employee" who would usually get the monthly "best service tech" bonus! He should have been a Fortune 500 CEO of a good old boy network business with government contracts...or a politician. Just his luck, he was born into the broken home of a poor family without any political connections. Imagine what he could have become if he had gone to Yale and become a member of the Skulls.

April 23 2014 at 10:59 PM Report abuse rate up rate down Reply