The Washington Post

How state taxes promote an underground cigarette market


Cigarette smuggling rates, by state. (Tax Foundation)

 

Want to make an easy $25,000? All you need is a car and willingness to smuggle cigarettes across state lines.

Inter-state cigarette smuggling is a lucrative business — one that underscores how differences among state taxes can produce multi-billion dollar side-effects. An average car can transport about 10 cases of cigarettes, according to the Bureau of Alcohol, Tobacco and Firearms. Load up with 10 cases in Virginia, home to the second-lowest state excise tax which comes out to $180 per case, and drive up to New York, home to the highest at $2,610 per case, and voila more than $24,300 in profit.


Cigarette taxes, by state. (Tax Foundation)

 

The effect of trafficking can be huge. A study last year of five northeastern cities found that roughly a third — maybe a little less, maybe a little more — of cigarettes in the cities were smuggled there.

In 2012, more than half the cigarettes consumed in high-tax New York were from out of state, according to February estimates from Michigan’s Mackinac Center for Public Policy, a think tank. (And mapped Wednesday by the Tax Foundation — see above.) The same was true in only one other state, lower-tax Arizona, which neighbors two even lower-tax states (as you can see below): California and Nevada.

In New Hampshire, almost a fourth of cigarettes were smuggled out, a higher rate  than in any other state according to the analysis. More than one in five cigarettes were smuggled out of five other states as well: West Virginia, Delaware, Virginia, Idaho and Wyoming.

The analysis underscores the effect of inter-state competition on taxes. Higher taxes are associated with higher rates of consuming smuggled cigarettes, as the Tax Foundation charted below.


(Mackinac Center for Public Policy; Tax Foundation)

 

Putting an end to trafficking could cut youth smoking by more than 9 percent in New York City, the authors of the 2012 study estimated. And it could save the five northeastern cities anywhere from $680 million to $729 million a year. In 2009, the head of ATF’s tobacco-diversion division told The Wall Street Journal that studies suggested states were losing an annual $5 billion because of inter-state cigarette smuggling encouraged by ever-rising taxes.

“The incentive to profit by evading payment of taxes rises with each tax rate hike imposed by federal, state, and local governments,” a Justice Department study that year found. And as the chart below shows, those taxes are only going in one direction: up.

(Government Accountability Office)
(Government Accountability Office)

 

Niraj Chokshi is a general assignment reporter for The Washington Post.

The Freddie Gray case

Please provide a valid email address.

You’re all set!

Campaign 2016 Email Updates

Please provide a valid email address.

You’re all set!

Get Zika news by email

Please provide a valid email address.

You’re all set!
Comments
Show Comments
The Democrats debated Thursday night. Get caught up on the race.
The Post's Chris Cillizza on the Democratic debate...
On Clinton: She poked a series of holes in Sanders's health-care proposal and broadly cast him as someone who talks a big game but simply can't hope to achieve his goals.

On Sanders: If the challenge was to show that he could be a candidate for people other than those who already love him, he didn't make much progress toward that goal. But he did come across as more well-versed on foreign policy than in debates past.
The PBS debate in 3 minutes
Quoted
We are in vigorous agreement here.
Hillary Clinton, during the PBS Democratic debate, a night in which she and Sanders shared many of the same positions on issues
South Carolina polling averages
Donald Trump leads in the polls as he faces rivals Marco Rubio and Ted Cruz heading into the S.C. GOP primary on Feb. 20.
South Carolina polling averages
The S.C. Democratic primary is Feb. 27. Clinton has a significant lead in the state, whose primary falls one week after the party's Nevada caucuses.
62% 18%
Fact Checker
Trump’s claim that his border wall would cost $8 billion
The billionaire's claim is highly dubious. Based on the costs of the Israeli security barrier (which is mostly fence) and the cost of the relatively simple fence already along the U.S.-Mexico border, an $8 billion price tag is simply not credible.
Pinocchio Pinocchio Pinocchio Pinocchio
The complicated upcoming voting schedule
Feb. 20

Democrats caucus in Nevada; Republicans hold a primary in South Carolina.

Feb. 23

Republicans caucus in Nevada.

Feb. 27

Democrats hold a primary in South Carolina.

Upcoming debates
Feb 13: GOP debate

on CBS News, in South Carolina

Feb. 25: GOP debate

on CNN, in Houston, Texas

March 3: GOP debate

on Fox News, in Detroit, Mich.

Campaign 2016
Where the race stands
Most Read

politics

govbeat

Success! Check your inbox for details.

See all newsletters

Close video player
Now Playing

To keep reading, please enter your email address.

You’ll also receive from The Washington Post:
  • A free 6-week digital subscription
  • Our daily newsletter in your inbox

Please enter a valid email address

I have read and agree to the Terms of Service and Privacy Policy.

Please indicate agreement.

Thank you.

Check your inbox. We’ve sent an email explaining how to set up an account and activate your free digital subscription.