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    New York Targets Cigarette Scofflaws

    Tobacco taxes rise, and so do smokers', vendors' evasion efforts.

    ALBANY -- With cigarette taxes at an all-time high, New York tax enforcement agents are in high gear. The volume of untaxed cigarettes seized by state tax agents swelled last year to almost 215,000 cartons, compared with 17,000 the year before -- almost a 13-fold jump. The more aggressive enforcement follows a series of tax increases that dramatically raised tobacco prices in New York and sent many smokers in search of cheaper cigarettes.

    State tax officials attribute the increase in seizures to better enforcement. "There's a lot more cigarettes coming into the state and, as a consequence, we've had to step up enforcement," state tax department spokesman Tom Bergin told the Rochester Democrat and Chronicle.

    Seizures were not limited to cigarettes. Tax enforcement agents last year also seized just under 600,000 cigars lacking required state tax stamps, more than 4,000 pounds of illegal tobacco and about 100,000 counterfeit tax stamps. In all, the department's newly expanded staff of 89 tax enforcement investigators made 25,000 retail cigarette inspections last year. Citations were given out in liquor stores, discount stores, corner stores and to street peddlers.

    The crackdown on cigarette bootleggers is easy to understand: tobacco taxes put about $1 billion a year into state coffers. Gov. George Pataki and the Legislature have leaned heavily on tobacco taxes to provide revenue in the recent tough times. New York's cigarette tax was almost doubled to $1.11 a pack in 2000. It was boosted to $1.50 a pack last April. Separately, New York City bumped its local share of taxes last summer from 8 cents to $1.50 a pack.

    The result: A name-brand pack of cigarettes goes for about $5.25 across much of the state and around $7 in New York City. Neighboring states with lower cigarette taxes -- all except Massachusetts ($1.51) and New Jersey ($1.50) -- can often undercut New York pack prices by 50 cents or more, the report said.

    Native American retailers, who argue they are exempt from sales tax on cigarettes, can beat New York retail prices by about two dollars. Bergin said illegal tobacco could come from anywhere. Tax agents last month seized 721 pounds of untaxed tobacco from Egypt. It came through the Port of New Orleans and then up to New York City by rail through Penn Station, where it was seized and the recipient was arrested.

    A Hudson Valley convenience store manager found to have more than 500 cartons of untaxed cigarettes last year bought them from a reservation across the state in Niagara County, the report said. The case resulted in the county's first felony indictment for tobacco tax evasion, as opposed to a misdemeanor charge.

    James Calvin, the president of the New York Association of Convenience Stores (NYACS), said only a small minority of retailers deal in illegal goods. And he said that bootlegging, in turn, is only a small piece of what he calls the "tax evasion phenomenon" New York has created for cigarettes through high taxes. He contends that the high taxes inspire smokers to seek other, cheaper sources for cigarettes, such as reservations and the Internet.

    "Certainly the state has created a huge financial incentive for consumers to evade the tax," Calvin said.

    Last week, the state legislature ordered New York Gov. George Pataki to start collecting taxes on Native American reservations to non-Native Americans customers. NYACS, as well as other lobbyists for the convenience store and petroleum marketing industry, have long support this type of legislation. Pataki, however, said that collecting any sales tax from Native Americans was unlikely.

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