Updated Research Highlights Impact of Cigarette Tax Evasion

New York still an empire of smuggled smokes as Nevada leaps towards the top

Friday, April 13, 2018

Holly Wetzel
Communications Coordinator

MIDLAND — The Mackinac Center for Public Policy released its annual update of cigarette tax evasion and avoidance among U.S. states. The update identifies the percentage of total cigarette consumption attributable to smuggling.

Higher rates of smuggling are typically due to higher state excise taxes on cigarettes. The tax differences between states lead individuals and even organized groups to move cigarettes from states with lower cigarette taxes to those with higher ones.

This update uses data from 2016 — the most recent year available — to estimate smuggling rates across the country. New York remained the top in-bound smuggling state in the nation, with nearly 56 percent of all consumed cigarettes being smuggled in from elsewhere. The state’s excise tax of $4.35 per pack is tied for the highest in the nation, making it is easy to see how New York was ranked number one.

One noticeable change was the state of Nevada. After increasing its cigarette taxes from $0.80 per pack to $1.80 per pack, it jumped 35 places in the rankings, becoming the sixth overall highest smuggling state.

“Our research continues to demonstrate that taxes matter. High cigarette excise taxes in one state and low ones in another create an opportunity for people to capture the tax differential, either to save or make money,” said study co-author Michael LaFaive, senior director of the Mackinac Center’s Morey Fiscal Policy Initiative. “The primary unintended consequence of different state excise taxes is smuggling,” he added.

This study also looks at states that have a low excise tax, which often export cigarettes. New Hampshire exports the most; for every 100 cigarettes consumed, an additional 86 are smuggled out.

These results are unsurprising to study co-author Todd Nesbit, assistant professor of free enterprise and entrepreneurial economics at Ball State University and an adjunct scholar with the Mackinac Center. “There are massive savings and even large illegal profits to be made in the cigarette smuggling game,” he said.

View the updated research here. View an interactive map here.

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