New Study Finds New York’s High Cigarette Taxes Lead To More Smuggling And Less Tax Revenue

The City of New York has, over the years, cracked down on the illegal tax evading cigarette market through a contingent of strict regulations. However, fraudulent sellers have found innovative ways of beating the system, costing the city billions, and as a new survey shows, the more things change, the more they remain the same.

The new research demonstrated that over 15 per cent of cigarettes sold in New York City are illegal, despite markings that indicate otherwise.

In the spring of 2014, New York University public health scholar Diana Silver conducted a research that involved investigators buying one pack of Marlboro Gold from 92 different licensed stores in the city of New York. The stores included retailers, subway station shops, street shops and transit shops, all randomly selected.

Investigators working with Silver did another round of purchases during the fall, after authorities imposed a minimum selling price for cigarettes. Overall, 830 cigarettes were bought either at or above the city’s minimum price.

When the cigarettes were later analyzed, the researchers were shocked to discover up to 15.1 per cent of the cigarettes bought either had counterfeit New York state stamps or had stamps from Virginia which had absolutely no minimum price and a paltry excise tax of $.30.

Researchers discovered that not only were the sellers getting their packs underpriced and without tax payments to the state and city officials, end consumers weren’t even reaping the benefits.

Silver said, “This is really the worst of it: Where prices are increasing for customers, taxes aren’t being paid, and probably, none of the income is being reported.”

Through setting up a minimum price for the smokes, city officials were targeting the illegal cigarette sales in the hope of permanently curbing them. However, as Silver found out, their sales actually increased.

Only 13.3 per cent of cigarettes purchased before the minimum price change were illegal. After the change, the figure went up to 16.9 per cent.

According to the research team, the results varied with the type of stores. While 21.2 per cent of cigarettes from independent retailers bore illegal stamps, only 7.1 per cent of chain store packs were illegally stamped.

Silver said, “There are a lot of extra hurdles around selling cigarettes and yet you’re still finding large numbers being sold illegally.”
Silver recommended the use of digital tax stamps which were more complex and almost impossible to forge.

New York loses up to $1 billion a year on cigarette tax evasion, despite having the nation’s highest price per pack. Traditional methods of stemming the sin tax evasion have not been forthcoming. New York City officials need to consider digital tax stamps as a far better way of curbing the vice or other ways of limiting smoking that don’t include financial penalties, which just increase smuggling.

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