(The Center Square) – New York remains the epicenter for cigarette smuggling in the United States, according to a report released earlier this week by the Tax Foundation.
According to the report, 53.5% of the cigarettes smoked in New York in 2020 were purchased on the black market. It's up from 52.2% in 2019. No other state had a higher share in either year.
The Empire State levies a $4.35 per-pack tax on cigarettes. It’s the highest state rate in the nation, tied with Connecticut. And in New York, municipalities can tack on their own as well. It means a combined local-state tax rate of $5.85 in New York City.
The Tax Foundation’s report determined the sale of smuggled cigarettes into New York cost the state nearly $1.1 billion in 2020. Only California, which has roughly double the population of New York, lost out on more revenue at almost $1.4 billion.
The lost tax revenue is just part of the problem, according to the report.
“The state needs to use resources to address its black market problems,” the group said. “In 2020, following a long-term investigation into an individual’s cigarette smuggling activity, a process including court-authorized search warrants, wiretaps, grand jury subpoenas, and other investigative tools, New York seized more than $1.3 million in cash and 6,267 cartons of untaxed cigarettes, according to a press release from the Queens’ District Attorney. But even law enforcement successes are costly and only stop a drop of water in the Hudson River of smuggling activity.”
From 2006 to 2020, New York’s tax rate rose 190%. Only 10 states have seen their cigarette tax rise by a higher percentage over the same time span.
New York officials say the high tax rates effectively curb youth smoking and encourage longtime smokers to give up the habit. They also cite the reduced health expenses attributed to kicking the habit. Still, at the same time, state officials acknowledge taxes from cigarette sales help cover state services and projects.
Tax Foundation researchers say the discrepancies in cigarette taxes encourage more smuggling. For example, at $1.78 per pack, New Hampshire’s tax is the lowest in the Northeastern U.S. The state also has the highest outbound rate of smuggled cigarettes. In 2020, 52.4% of the cigarettes sold in the Granite State ended up elsewhere.
But contraband smokes don’t have to come from other states.
In September, New York Attorney General Letitia James announced the state reached a $50 million settlement with Canadian cigarette maker Grand River Enterprises Six Nations and wholesaler, Native Wholesale Supply Company.
Investigators in James’ office found Native Wholesale, which was not licensed to distribute cigarettes in New York, bought millions of cartons from Grand River and distributed them across the state without going through a stamping agent to show taxes had been prepaid on the cartons. State agents were then able to buy the unstamped packs at retail outlets.
