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    N.Y. Association: Cigarette Tax Evasion "Flourishes" After Rate Hike

    Taxable unit sales of cigarettes in the state plummet more than 30 percent after the state raises its cigarette tax $1.25, association finds.

    ALBANY -- Monthly tax collection data from the state Department of Taxation and Finance’s Web site indicate licensed tobacco retailers sold 5.5 million fewer cartons of cigarettes during the three months ending Aug. 31, 2008, a 31 percent drop compared with the same period in 2007, according to the New York Association of Convenience Stores (NYACS).

    The association attributed the drop in sales to the June 3 cigarette excise tax increase of $1.25 per pack, which made the state’s tobacco tax the highest in the nation, at $2.75 a pack, and the resulting tax evasion by consumers.

    "A small fraction of that [drop] is attributable to people quitting smoking," NYACS President James Calvin said in a statement. "The vast majority of it is smokers shifting their purchases to tribal stores, the Internet, or the black market to avoid paying any tax, or to neighboring states with lower tax rates."

    While cigarette tax revenue rose 27 percent, increasing $73 million, during the three-month period, due to the tax hike, the 5.5 million fewer taxable cartons sold translate to a net loss of around $22 million in state and local sales tax revenue, NYACS stated.

    "These numbers confirm what we had predicted—that due to the plague of cigarette tax evasion that our state has allowed to flourish, the June 3 cigarette tax hike is self-defeating, and has succeeded only in crippling legitimate small business, chasing away much-needed tax revenue, promoting lawlessness and thwarting anti-smoking initiatives," said Calvin.

    NYACS opposed the tax increase when it was proposed earlier this year. A February 2008 study done for the association by economist Brian O’Connor found the state would generate $600 million a year in additional revenue by enforcing an existing law that requires the collection of taxes on tribal sales of cigarettes to non-Indian customers. That study can viewed at www.nyacs.org/documents/08OConnorstudy.pdf.

    "Whenever a smoker buys a pack of cigarettes tax-free, the state loses the $2.75 excise tax, the state and local governments lose another 50 cents or so in sales tax revenue, licensed small businesses are deprived of a legitimate sale, anti-smoking efforts are impeded, and those who ignore tobacco taxes and regulations are rewarded for defying the law," Calvin said.

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