WASHINGTON, D.C. -- As cigarettes have become a common target for tax increases in just about every state, the black market for cigarettes has turned into a lucrative trade.
According to a Tax Foundation report, Cigarette Taxes and Cigarette Smuggling by State, illegal cigarette sales are on the rise nationwide, with New York and Arizona coming in as the top two states with the highest inbound cigarette smuggling rates.
Not surprisingly, New York has the highest cigarette excise tax in the United States at $4.35 per pack.
The large swings in cigarette taxes across states create incentives for black-market sales. In addition, cigarette tax rates increased in 30 states and Washington, D.C., between 2006 and 2012, the report noted.
Smuggled cigarettes account for substantial portions of cigarette consumption in many states, and more than 25 percent of consumption in 12 states. According to the report, the highest inbound cigarette smuggling rates are in New York (56.9 percent), Arizona (51.5 percent), New Mexico (48.1 percent), Washington (48 percent) and Wisconsin (34.6 percent).
The highest outbound smuggling rates are in New Hampshire (24.2 percent), Wyoming (22.3 percent), Idaho (21.3 percent), Virginia (21.1 percent) and Delaware (20.9 percent).
"Public policies often have unintended consequences that outweigh their benefits," said Tax Foundation economist Scott Drenkard. "Dramatic increases in state cigarette taxes over the years have led to increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states. Growing cigarette tax differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise."
According to the nonpartisan Tax Foundation, most smuggling cases start with criminals procuring discounted packs from low-tax states to sell in high-tax states, but may also include counterfeit state tax stamps, counterfeit versions of legitimate brands, hijacked trucks, or bribed officials turning a blind eye to illegal shipments.