High New York cigarette taxes result in smuggling

January 15, 2003

Free Market Foundation

Thanks to eye-popping state and city taxes in New York, cigarettes have become a hot black market item. Street vendors, cab drivers and corner grocers offer customers packs that would otherwise sell for $7.50, at prices of $4 or $5.

New York City boosted its excise tax on cigarettes from eight cents a pack to $1.50 last summer, and New York State raised its levy from $1.11 to $1.50.

Consequently, the number of cigarette-tax stamps sold by the city from August to November was down 50 percent from a year ago.

Untaxed cigarettes smuggled in from other states are providing business opportunities not only to those who formerly sold compact discs on street corners to amateurs seeking extra income.

Tax-enforcement agents are busier than ever but legitimate cigarette retailers complain that business is down sharply.

Smugglers typically buy van loads of popular brands at discount stores in Virginia, where the cigarette tax is just 2.5 cents a pack, or in North Carolina, where it is five cents. Since North Carolina does not have a tax stamp on its packs, smugglers who are so inclined can add a counterfeit New York tax stamp to their wares.

When their van pulls into Manhattan, the street value of smugglers’ cargoes nearly double in value.

Source: Gordon Fairclough, Pssst! Wanna Cheap Smoke? Wall Street Journal, December 27, 2002.

For text (WSJ subscribers) http://online.wsj.com/article/0,,SB1040938577857473793-search,00.htm
For more on Sin Taxes http://www.ncpa.org/iss/tax

FMF Policy Bulletin\7 January 2003