In 1938, New York City's government enacted a temporary 1-cent tax on a pack of cigarettes that at the time cost about 15 cents. Evidence emerged quickly that the tax was creating unintended consequences. Its city residents started shopping in New Jersey; bootleggers started shipping from New Jersey; and there was a surge of ancillary crime in both places.[156]

New York state nonetheless followed the city's example and enacted its own tax in 1939. Meanwhile, the city let its temporary tax expire, but the state tax kept the smugglers in business until New Jersey enacted a tax in 1948. During this decade, New Jersey was a pariah - the exporter of low-tax or untaxed cigarettes.[157]

As Amos Tilton, state supervisor of the Cigarette Tax Bureau in New Jersey's Department of the Treasury, reminded his colleagues in 1949, one year after enactment of the New Jersey tax:

While the Garden State grew no tobacco, it did grow a weed far more obnoxious to our immediate sister states and to a lesser but annoying degree to states as far west as the Mississippi River. I refer, of course, to the New Jersey cigarette mail order business and to the owners of gasoline service stations and other establishments which sold cigarettes to out-of-state motorists anxious to beat the tax in their own states of residence - and what could be more human![158]

The adoption of New Jersey's 3-cent tax per pack in 1948 (see Graphic 21) coincided with New York's 3-cent tax, increased that year from 1 cent. That identical tax burden should have brought the trafficking of cigarettes between those two states to a halt by eliminating the profit motive. However, that same year New Jersey followed the example of Massachusetts and a few other states in enacting a minimum-price law that prevented retailers from selling cigarettes below a certain price. The law was based on the idea that discount stores were somehow damaging the market, but the price floor acted like another, higher tax. Instead of plaguing other states' tax administrators with untaxed cigarettes, New Jersey became a destination for smugglers importing cheaper out-of-state cigarettes that could be resold more profitably at the elevated minimum price.


[156] "Mayor Cannot Veto Relief Inquiry, Its Sponsors in Council Contend," New York Times, June 16, 1938, 1; "Storekeepers Fined under City Tax Law," New York Times, August 4, 1938, 29; "Fined for Untaxed Cigarettes," New York Times, August 10, 1938, 3; "6 Suspended in Theft of City Tax Stamps," New York Times, September 1, 1938, 24; Louis H. Fuess, "Tobacco Tax Enforcement Problems-Urban Areas," in Proceedings of the 15th Annual Meeting of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1941), 15.

[157] "Cigarette Peddlers Throng Jersey Roads; Tax-Beaters Curbed as Traffic Hazard," New York Times, July 19, 1939, 1; "New Jersey's Gift to New York Cigarette Smokers," New York Times, July 20, 1939, 13; "Cigarette Peddlers Facing Federal Ban," New York Times, July 20, 1939, 13; "Dewey Plans to Curb Cigarette Imports," New York Times, July 21, 1939, 5; "City to Prosecute Cigarette Evaders," New York Times, July 28, 1939, 19; "Englewood to Oust Cigarette Vendors," New York Times, August 4, 1939, 11; "State Cigarette Tax Yield Falling Short; Leaders Blame City Levy for Small Return," New York Times, August 13, 1939, 22; "State Tax Fraud Charged against 4," New York Times, January 25, 1942, 35; Louis H. Fuess, "Round Table Discussion," in Proceedings of the 14th Annual Meeting of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1940), 11; Louis H. Fuess, "Checking Common Carrier Shipments of Cigarettes," in Proceedings of the 15th Annual Meeting of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1941), 4; Mary G. Krone discussing Henry F. Long, "Control of the Sale of Cigarettes in Interstate Commerce," in Proceedings of the 19th Annual Meeting of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1945), 11.

[158] "The Unfair Cigarette Sales Act in New Jersey," in Proceedings of the 23rd Annual Meeting of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1949), 5.