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Posted on 04/18/2003 12:32:52 AM PDT by sarcasm

EW CASTLE, Del., April 14 — From the foot of the Delaware Memorial Bridge, where the cars spill in from New Jersey, it is an easy 1.9-mile swoop (three minutes in good traffic) to the Delaware Tobacco Outlet. On Saturday, the manager, Shirley Legeza, arrived to find a busload of New Yorkers waiting for her to open.

Not a mile down Route 13, past the gun store, Ellie Taylor surveyed the parking lot this morning at her shop, Airport News and Tobacco: "Six cars, all New Jersey."

Within two or three miles of the bridge, a half-dozen more cigarette outlets share the bounty. For this fiscal year, which began with thumping cigarette-tax increases in New York, New Jersey, Pennsylvania and Maryland, sales in Delaware are 32 percent ahead of the same period in 2002. Almost every month, Delaware officials have had to raise sales projections.

And now those officials have another revision to make for the year starting July 1. That is the day when, if Gov. James E. McGreevey has his way, New Jersey's tax will rise 40 cents a pack to $1.90 — by far the highest in the nation except for the combined city and state tax of $3 a pack in New York City.

Delaware's tax is 24 cents. To do better, a New Jerseyan would have to keep driving southwest to West Virginia (17 cents) or Virginia (2 1/2 cents), and Delaware has no sales tax. Gov. Ruth Ann Minner of Delaware has proposed a 26-cent-a-pack increase, but even that would leave a widening differential with New Jersey, allowing New Jerseyans to buy a carton of Marlboros for about $25 rather than $50.

"I don't know if I can handle it," Ms. Legeza said from behind the counter, nodding toward the steady line of customers. "Not one person in this line is from the state of Delaware."

Ms. Legeza estimated that 80 percent of her customers were from New Jersey, with many of the others from points as far northeast as Connecticut.

Across the cash register, a customer named Mary, who like most out-of-state buyers would not give her last name because she violates the law by driving her stash home, volunteered that she had been coming to Delaware since 1998, when the New Jersey tax rose to 80 cents from 40 cents.

Every two weeks, Mary drives 50 miles from rural Leesburg, N.J., to buy cigarettes for herself and her husband, she said, saving $150 to $200 a month.

"They ask for more and more" in New Jersey, she said, "and where has the money gone? What do they do with it? I don't even have health insurance."

The cigarette price gap between Delaware and its neighbors has grown in fits and starts for years, but the last round of increases opened a chasm. New Jersey's tax rose to $1.50 a pack, matching New York's, and Pennsylvania and Maryland both went to $1.

Despite ample research on the effects of cigarette prices on sales, forecasters did not know what to expect. "In the past, the surrounding states have raised taxes and the diffferential has grown, but it's never been of this magnitude and it's never been simultaneous," said David Gregor, the research director of the Delaware Department of Finance.

At the same time, cigarette sales in New Jersey this fiscal year have been 1.7 percent above the state's projections. The tax increase is expected to raise about $200 million for fiscal year 2003, and a 40-cent increase in July would yield $78 million more for the 2004 fiscal year.

It is hard to tell exactly where Delaware gets the extra customers, since the tax is collected only from the half-dozen wholesalers in the state, Mr. Gregor said. Nor can New Jersey track sales by location to see which borders are the most porous.

Retailers here say bootlegging is surely rising, although serious black-marketeers follow Interstate 95 to Virginia. The bigger dealers insist that they abide by manufacturers' limits on sales of promoted brands: customers may buy, for example, only two cartons of Newports, which sell for $22 to $23 a carton here and $50 to $60 in New Jersey.

But some dealers, they say, sell with abandon to out-of-state buyers with vans bound for New York. "They buy 50, 100, 500 cartons," said one manager.

With or without bootleggers, and with or without its own tax increase, Delaware expects growing profits from other states' residents. "I've been tempted to invite McGreevey and Bloomberg to come sit in the parking lot," said one dealer, referring to the New Jersey governor and to New York City's mayor, Michael R. Bloomberg. The dealer said his sales had gone from 500 cartons a week a year ago to 5,000 a week now.

Ms. Legeza estimated that her sales had risen 20 percent to 30 percent since July. This July, she predicted, the weekend traffic will be even more frantic than it is now.

But the market accommodates. Ms. Legeza said that just up Route 13, another cigarette outlet is opening soon.

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