New Jersey's Tax Differentials With Surrounding States

In 2008, seven Eastern states and the District of Columbia levy a tax of at least $2 per pack. Connecticut, Maryland and Maine charge exactly $2; Rhode Island's rate is $2.46, New Jersey's is $2.575 and New York state's excise tax is $2.75.

These high-tax states are not an especially long drive from states with comparatively modest taxes: West Virginia, Illinois and Indiana have state-level tax rates between 50 cents and $1.00 per pack while New Hampshire, Ohio, Delaware and Pennsylvania have rates between $1.00 and $1.50. And of course there are the truly low-tax states in the south — Kentucky, North Carolina, South Carolina, Virginia, Mississippi, Alabama and Georgia — all of which have rates lower than 50 cents.

These cigarette smugglers can be syndicates or small operations. Commercial smugglers with enough capital and connections can bring in millions of cartons by truck or ship, buying them wherever they can obtain inexpensive cartons in quantity - sometimes on a reservation, sometimes in a low-tax tobacco state and sometimes abroad, where even the federal tax can be avoided. In all cases, their profits are maximized when the tax differential between the sites of purchase and sale is large. That makes New Jersey a premier destination for smugglers.