Cigarettes are taxed everywhere, although it’s particularly high in NYC. However, the reason these cigarettes are “tax free” is that they’re stolen or smuggled in the first place, by the Mafia or jihadi groups, and that’s what arrests like this are meant to stop.
BTW, it’s not only cigarettes but even things like gasoline that are stolen and resold by these groups through vendors such as Garner.
When the taxes in one jurisdiction are high enough, it is only natural that a black market arises to smuggle goods from a lower tax jurisdiction.
If people are selling a bootleg item that is otherwise easily available through legal means, that is an indication that your taxes are way too high.
In Goodfellas the kids first pinch was selling boosted butts.