Posted on 11/27/2001 8:56:44 AM PST by Tumbleweed_Connection
David Cross scans a pack of cigarettes at his dad's store, Cross Smokeshop, in Fife.
For years, Washington state has been waging a losing battle with cigarette smugglers. By the state's admittedly crude estimate, nearly one out of three cigarettes sold is contraband, meaning no tax is collected.
The outlook seems even darker as law-enforcement and state revenue officials peer into the post-Initiative 773 era, which starts Jan. 1.
The measure, overwhelmingly approved by voters earlier this month, will tack an additional 60 cents in taxes onto each pack of cigarettes. State revenue forecasters maintain they took the illicit market into account when they originally projected the initiative would generate $130 million a year, most of it dedicated to improving health care for low-income people.
Projections have since been lowered by about $12 million.
State economists disagree about how higher prices will affect taxed sales. And they have no clue what effect they will have on untaxed sales.
With its new $1.425-per-pack tax, Washington will become the most expensive state in the nation in which to be a taxpaying smoker. The initiative will also increase the retail price of other tobacco products, such as cigars, by about 30 percent.
Mark Smith, a spokesman for the Brown & Williamson tobacco company, predicts: "All hell is going to break loose."
That may prove to be hyperbolic, but there is no question the incentive to cheat will increase.
"If I were a betting man," said Department of Revenue spokesman Mike Gowrylow, "I'd bet that the level of evasion will increase."
Avoiding the tax
And why not, considering the easy, cheap alternatives?
• A trip to neighboring Idaho (28 cents in taxes per pack) or Oregon (68 cents a pack in cigarette tax and no sales tax).
• A trip to one of the numerous Puget Sound-area tribal smokeshops, which do a thriving business selling tax-free cigarettes.
• A trip to the Web, where a growing number of online vendors sell cigarettes and other tobacco products, in some cases promising not to reveal any trace of the transaction to state revenue officials.
As Carter Mitchell, who heads the tobacco-enforcement program for the State Liquor Control Board, puts it: "You can't become the highest-taxed state in the nation and not be in for a helluva ride."
Mitchell stops short of criticizing the initiative's backers — a coalition of anti-tobacco groups and health-care organizations — for not including extra money for law enforcement.
"We're going to see how effective we can be with what we've got," he said, referring to the agency's 14 agents and $1.3 million budget dedicated to tobacco-tax enforcement.
Mitchell's crew has had only modest success since it took over enforcement efforts from the Department of Revenue in 1997. Since then, it has recouped about $1.3 million in lost cigarette-tax revenues. That represents only a fraction of a percent of the hundreds of millions in lost tobacco-tax revenue. Last fiscal year alone, the loss was estimated at $107 million.
What's harder to measure, Mitchell said, is the potential deterrent effect of large seizures.
No smoker's remorse
Feeling completely undeterred, however, are consumers who patronize tribal smokeshops or fire up their PCs to beat the state's high tobacco taxes.
Take the 61-year-old woman outside a Puyallup tribe smokeshop in Milton, Pierce County, who earlier this month purchased a carton of Winstons for $32.95. That price, she said, included the "senior discount" the tribal smokeshop offered her. The same purchase at Fred Meyer would have cost her $48.31, including all taxes.
The woman, who lives in nearby Edgewood, didn't want to give her name, but admitted she was not a Puyallup tribal member and therefore was not entitled to the tax-free discount.
She had no compunctions about doing business with the Puyallups.
"It's like bringing booze home from Reno," she said. "You're not supposed to do that, either."
A few hours after her purchase and 20 miles to the north, Jeff stood outside Rain City Cigar in Seattle's Georgetown neighborhood, puffing on a cigar. Jeff often visits the shop because it's a convenient way to sample various cigars. He buys one or two at a time.
But when he finds a brand he likes, he turns to his computer to order by the box online, thereby cutting his costs by more than half.
"I couldn't afford them if I bought them by the box here," he said, referring to Rain City.
And that's before Initiative 773 takes effect, which will make the difference even more dramatic.
Is Jeff at all conscience-stricken that he's cheating the state? "I have no problem with it," he says.
Every time the Edgewood woman and Jeff cheat, they are committing a gross misdemeanor that is technically punishable by a $5,000 fine and a year in jail, plus civil penalties. In reality, their chances of getting caught are next to zero, because the state seldom hassles smokers.
And when the state tried to crack down on online vendors, it had very limited success. Revenue spokesman Gowrylow said his agency sent letters to 36 online vendors over two years ending last July. In the letter, the state cited a federal law that requires remote cigarette sellers to disclose details about interstate transactions.
Only 12 vendors responded, and of those, only two sent a list of customers. Those efforts netted about $25,000 in tax payments from 467 people, Gowrylow said.
A significant number of online vendors are tied to New York state-based Indian tribes, he said. Such tribes were handed a victory last summer by a New York federal judge, who overturned a state law that sought to prohibit use of the mails to transport cigarettes. The case is on appeal.
Meantime, 8 percent of total tobacco consumption nationwide involves smuggled products, according to FIA International Research, a Toronto-based company that has studied the illegal market. Last year alone, tobacco-tax evasion cost state and federal governments about $1.75 billion, according to the company.
FIA President Mario Possamai said Washington already ranks among the most contraband-prone states because of its high tobacco taxes. Initiative 773 will produce even more incentive for consumers to look for cheaper alternatives and could turn otherwise law-abiding citizens into smugglers, he said.
Mounting problems?
If the experience of other states is any measure, Washington could see hijackings of tobacco-laden trucks and an increase in convenience-store holdups, said Mitchell of the Liquor Control Board.
Cigarettes, he said, represent a "highly convertible commodity that any group can use to generate cash." At the same time, Mitchell said, the punishment is fairly light.
The state's latest large bust, which occurred nearly a year ago near Ellensburg, is illustrative. Agents seized 4,093 cartons of untaxed cigarettes with a wholesale value of $85,000 and $33,767.25 in evaded taxes.
Authorities charged two tribal members, both of whom pleaded guilty to a felony charge of unlawful possession of more than 60,000 unstamped cigarettes. Each got a 30-day jail sentence, all but four days of which were converted to community-service hours, and $1,010 in fines and fees.
The contraband problem in California has grown so severe that the state attorney general recently pledged to push legislation to fight financial fraud and organized crime associated with tobacco-tax evasion.
The problem escalated in 1999, when California increased the tax 50 cents a pack and manufacturers boosted the price another 50 cents. California's contraband problem now accounts for $400 million a year in missing revenue.
States would like to see tougher federal laws to deal with the problem, including a shift in enforcement responsibilities from the FBI to the Bureau of Alcohol, Tobacco and Firearms and a lower threshold for ATF to get involved in felony prosecutions. But Mitchell said he didn't blame the feds for not getting more involved locally; they have other priorities.
"We had a couple of cases we would have liked to have some (federal) action on, and that didn't happen," he said.
Right. Not only do they smuggle illegal goods, but they'll do so with legal goods whenever there is a profit in doing so. In the case of the cigaretters, when enough money can be saved by avoiding the taxes to get people interested in the black market alternative. Get that profit margin up high enough and show enough of a demand, and you'll have offshore producers shipping their products directly to the black marketeers.
Get enough money flowing, and the various smugglers will start fighting over the market.
rob reiner is meathead from "All in the Family"
do a search using keywords "reiner cigarette tax"
here are a few hits:
http://substanceabuse.about.com/library/blnic021900.htm
http://www.ndsn.org/NOVDEC98/TOBACCO2.html
It happened in Canada back in the 80s. They pushed the tax up to where a pack cost $7 each. They actually had a drop in revenues (a big black market grew out of nowhere) and the good liberals decided to 'roll' back the taxes. Seems they were more interested in tax revenues than in protecting the 'children' from those evil cigarettes. The same will happen in Washington.
And where did you read that? Does that cover all the old non-smokers who spend the last 20 of their 100 years lying in a nursing room bed not knowing what their name is? Smokers tend to check-out quickly. Medicare doesn't have to buy Depends by the truck load for them.
They used to tell us the tax was about health. Now they admit that it all about REVENUE. No surprise here.
Big Brother has come but not in the form of a Republican as so many socialists have led us to believe!
Big Brother has come in the form of the DNC, special interest groups such as MADD and those idiots going by the name of The Truth!
I'm sure everyone has seen the ads The Truth puts out, what would happen if someone did the same types of ads about the dangers of HIV transmission? The ACLU, GLADD and every other SI group would be screaming for a ban.
Actually, many state's attorneys general used a similar argument to wrangle a huge settlement from the tobacco companies. So, here in Iowa, where is the annual windfall going? Not back to the taxpayers who allegedly financed the treatment of smokers' alleged medical bills over the years, but to smoking cessation programs and to pay for TV ads and billboards urging kids not to smoke. (Yeah, those are all proven to work wonders.)
Oh, and of course, let's not forget the lawyer friends of the attorney general who represented the State in the $ettlement.
| STATE |
TAX RATE
(¢ per pack) |
RANK |
STATE |
TAX RATE
(¢ per pack) |
RANK | |
| Alabama (1) | 16.5 | 43 | Nebraska | 34 | 26 | |
| Alaska | 100 | 2 | Nevada | 35 | 25 | |
| Arizona | 58 | 15 | New Hampshire | 52 | 17 | |
| Arkansas (2) | 31.5 | 29 | New Jersey | 80 | 6 | |
| California | 87 | 4 | New Mexico | 21 | 37 | |
| Colorado | 20 | 38 | New York (1) | 111 | 1 | |
| Connecticut | 50 | 19 | North Carolina | 5 | 49 | |
| Delaware | 24 | 32 | North Dakota | 44 | 21 | |
| Florida | 33.9 | 27 | Ohio | 24 | 32 | |
| Georgia | 12 | 46 | Oklahoma | 23 | 36 | |
| Hawaii | 100 | 2 | Oregon | 68 | 11 | |
| Idaho | 28 | 31 | Pennsylvania | 31 | 30 | |
| Illinois (1) | 58 | 15 | Rhode Island | 71 | 10 | |
| Indiana | 15.5 | 44 | South Carolina | 7 | 48 | |
| Iowa | 36 | 24 | South Dakota | 33 | 28 | |
| Kansas | 24 | 32 | Tennessee (1) (2) | 13 | 45 | |
| Kentucky (2) | 3 | 50 | Texas | 41 | 23 | |
| Louisiana | 24 | 32 | Utah | 51.5 | 18 | |
| Maine | 74 | 9 | Vermont | 44 | 21 | |
| Maryland | 66 | 12 | Virginia (1) | 2.5 | 51 | |
| Massachusetts | 76 | 7 | Washington | 82.5 | 5 | |
| Michigan | 75 | 8 | West Virginia | 17 | 41 | |
| Minnesota | 48 | 20 | Wisconsin | 59 | 13 | |
| Mississippi | 18 | 39 | Wyoming | 12 | 46 | |
| Missouri (1) | 17 | 41 | Dist. of Columbia | 65 | 13 | |
| Montana | 18 | 39 | ||||
| U. S. Median | 34.0 |
Source: Compiled by FTA from various sources
(1) Counties and cities may impose an additional tax on a pack of cigarettes in AL, 1¢ to 6¢; IL, 10¢ to
(2) Dealers pay an additional enforcement and administrative fee of 0.1¢ per pack in KY and 0.05¢ in TN. In AR, a $1.25/1,000 cigarette fee is imposed.
State Tax/Legislator information includes Federal tax
Well, well, here you are again spouting trash and acting as if you knew something. Thanks for the opportunity of once again setting you straight.
After the Clinton administration proposed a substantial increase in the cigarette tax as a way of funding health care reform, CRS economist Jane Gravelle and colleague Dennis Zimmerman wrote a paper entitled "Cigarette Taxes to Fund Health Care Reform and Economic Analysis." (CRS, Library of Congress, #94214 E ). They set out to measure the magnitude of costs, including spillover effects, and compare them with the existing level of cigarette taxes to determine whether an increase in cigarette taxes was justified. They found that (this was in 1994, remember) the cost per pack of cigarettes was 33 cents. At the time, the sum of federal, state, and local cigarette taxes was already 50 cents per pack. The ONLY way to crunch the numbers so that it seems smokers are not paying their own way is to assume that nonsmokers enjoy perfect health and eternal life.
To make it fair, YOU people should be paying US to smoke!
Hey pinhead, what sector of society do you think the majority of smokers represent?
For anyone else thinking the same, your thought obviously necessitates a response. The poor. Why doesn't it make sense to overtax the poor? Again, for those thinking the same as the above, because it creates further ammunition for the liberals to increase taxes on the hard working successful people in this country to compensate for the drain they are creating on the poor.
The taxes are not benefitting health care for these people as originally promised,that still comes out of the pockets of hard working successful people.
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