WASHINGTON, D.C. — New York has the highest state cigarette excise tax. It also has the highest amount of cigarette smuggling activity. That is not a coincidence, according to the Tax Foundation.
According to Scott Drenkard, director of state projects at the Tax Foundation, public policies often have unintended consequences that outweigh their benefits. One consequence has been increased smuggling as people purchase cigarettes in low-tax states and sell them in high-tax states.
"Growing cigarette tax differentials have made cigarette smuggling both a national problem and in some cases, a lucrative criminal enterprise," Drenkard said.
The most recent report from the Mackinac Center for Public Policy, a Michigan think tank, crunched the 2015 numbers and found that smuggling rates generally rise in states after they adopt cigarette tax increases.
Smuggling rates have dropped in some states, often, however, where neighboring states have higher cigarette tax rates.
The 2015 numbers put New York No. 1 as the highest net importer of smuggled cigarettes, totaling 56.8 percent of total cigarette consumption in the state.
New York's state cigarette tax is $4.35 per pack. New York City levies an additional $1.50 per pack. According to Drenkard, smuggling in New York has risen 59 percent since 2006 as the tax rate increased 190 percent.
On the flip side, Drenkard pointed out, Vermont was a net importer in 2006 with 4.5-percent inbound smuggling. After only a 46-percent tax increase from 2006 to 2014, the state moved to a net exporter by 2014 with 10.4-percent outbound smuggling.
However, after raising its cigarette tax by 13 cents in 2015, Vermont’s rate of smuggling cigarettes into other states dropped by almost half, he added.
To download the Tax Foundation's report FISCAL FACT No. 565: Cigarette Taxes and Cigarette Smuggling by State 2015, click here.