California Leads the Way in Fighting Tobacco Tax Evasion

Press enter to search
Close search
Open Menu

California Leads the Way in Fighting Tobacco Tax Evasion

SACRAMENTO, Calif. -- California is fighting tobacco tax evasion with aggressive, high-tech enforcement that has cigarette tax revenue increasing by tens of millions of dollars for the first time in years, even as smoking in California declines, reported the Los Angeles Times .

Within 20 months, California has taken in more than $124 million in new tobacco-tax receipts. Officials credit a new program that includes stamping every cigarette pack sold in the state with a counterfeit-proof sticker. Investigators, armed with hand-held devices, visit stores and scan the stickers to see whether a package of cigarettes is licensed for sale, where it came from and whether the distributor paid the required taxes. They seize illegal products as they find them and then begin tracking their sources, according to the report.

The stickers, along with more inspectors and strict new licensing requirements, have helped the state bust scores of smugglers and retailers, seizing millions of illegal cigarettes. At the same time, the federal government has ramped up its sting operations in California, making high-profile arrests that have saved the state millions.

"No other state has done anything like this," Eric Lindblom, the director of policy research for the Campaign for Tobacco-Free Kids in Washington, told the Los Angeles Times . "Everywhere else they are using 1950s technology. We're hoping other states will follow suit."

The sale of black-market cigarettes, including counterfeit products made in other countries as well as legitimately manufactured cigarettes illegally shipped from lower-tax states, has become increasingly attractive to organized-crime rings, authorities say in the report. It is more lucrative than ever, now that so many states have raised tobacco taxes.

California’s tax of 87 cents per pack is still higher than in most states. And several large health-care groups have drafted a bill that they hope to place on the November ballot to quadruple the tax on every pack to $3.47.

The penalties for trafficking in illicit cigarettes, meanwhile, remain relatively minimal. It is estimated that, nationwide, more than $1 billion in cigarette tax money is lost each year to crime, a quarter of that in California, the newspaper reported.

"There is so much money and so much profit, and it is relatively easy to do," Jeff Cohen, an assistant chief counsel with the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, told the Los Angeles Times . "You can make the kind of money you would selling drugs, without the risk."

Before the state started its program, counterfeit stamps were widely available and tough to detect. State investigators said that millions were produced abroad and smaller quantities were being created domestically on home computers, according to the report.

Tom Loeser, an assistant U.S. attorney, told the newspaper that traffickers "drive around in pickup trucks full of cigarettes, walk into gas stations and convenience stores and say, 'I can sell these cartons to you at a deep discount. How many do you want?'

"The store owner would look at them, see they had stamps and say, 'OK,'" said Loeser, adding that it is extremely difficult for law enforcement to prosecute the store owners, who could claim that they thought they were buying a legitimate product.

Initially, major tobacco companies appeared untroubled, because they were being paid for the cigarettes they produced. The only loser was the government, which was not getting the tax revenue. Then millions of counterfeit cigarettes designed to look exactly like big American brands began appearing in California from China, Mexico and other countries, according to the report.

So the industry began lobbying for more aggressive anti-smuggling efforts. California developed the high-tech stamp, hired more inspectors and tightened licensing requirements to help law enforcement track cigarette shipments.

Investigators at the California Board of Equalization -- the agency that oversees tobacco sales -- go store to store and check cigarette inventories with their scanners to determine whether cigarettes are legitimate. The yellow, black and white stamps are designed with a California state bear logo that is encrypted with information peculiar to a pack, the Los Angeles Times reported.

State inspectors visited 8,420 shops in the 2004-05 fiscal year, issuing 523 citations, mostly to small convenience and grocery stores. Repeat offenders risk losing their licenses to sell tobacco products, which could easily put a small convenience store out of business. Board officials say that repeat offenses have decreased significantly, according to the report.