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$200M lost to smokes smugglers/Yearly city, state tax shortfall from gang & Internet sales
New York Daily News ^ | 9/23/02 | WILLIAM SHERMAN

Posted on 09/23/2002 2:22:23 AM PDT by kattracks

Freelance smugglers, organized crime and Internet sources are flooding New York's neighborhoods with cheap cigarettes that would bring the city and state upward of $200 million a year in taxes on the legitimate market.

With premium brands such as Marlboro going for $7.75 a pack in many stores throughout the five boroughs and cartons going for $70 and more, thousands of smokers have chosen to buy either smuggled smokes - or untaxed cigarettes from more than 144 Internet sites, which are legal but unregulated.

The boom in underground cigarettes was touched off by the July 2 increase in city taxes to $1.50 per pack from 8 cents apack and a bump in state taxes to the same $1.50 per pack from $1.11, according to government officials and tobacco wholesalers.

In July and August, 24.5 million fewer packs of legitimate cigarettes were sold in retail outlets throughout the city than in July and August last year, according to the city Finance Department. That's a drop of 41%.

Smuggling to the city from lower-tax states such as Virginia (2.5 cents a pack total) generates tremendous profits for ringleaders - up to $25,000 for a day's work involving a van loaded with 2,500 cartons, said Edgar Domenech, special agent in charge for the federal Bureau of Alcohol, Tobacco and Firearms' regional field division.

Untaxed cigarettes or cigarette packs with phony tax stamps are available in many neighborhood stores or on the street, where hawkers routinely peddle $50 cartons.

"When it comes to smuggling and counterfeit stamps, traditional organized crime is involved, terrorist groups are involved and street gangs are involved," said John Dugan, the ATF's area supervisor for industry operations.

"Now, the profit margin is tremendous," he said.

3 stores in 4 blocks

One morning last week, three stores in a four-block area in Bedford-Stuyvesant, Brooklyn, were busted by agents of the Finance Department's tax enforcement division for selling untaxed cigarettes.

The agents bought the cigarettes at Tony's Millennium grocery store, 269 Schenectady Ave.; the Peking restaurant, 249 Schenectady Ave., and Freddie's deli and grocery, four blocks away on St. Johns Place.

"I don't know where they're from, I don't [know] anything about it," said Antonio Blas, a clerk at Tony's Millennium. Hewas answering the investigators' questions as they searched his store.

Blas said that sales of cigarettes of any kind were "way down" because of street hawkers.

"They're right outside the store, up the block, selling out of their trunks, saying, 'Hey, man, $5, $5 a pack,' so people are not coming in here to buy," he said.

'I work here, not owner'

At Freddie's deli, Faiz Saleh Al-Qah, the clerk behind the counter, shook his head and in broken English told investigators he had no idea what they were talking about when they confronted him with the untaxed packs. "I work here, not owner," Al-Qah said.

And at the Peking restaurant, investigators arrested the owner after finding 10 cartons of untaxed cigarettes hidden in barrels and under counters.

City Finance Commissioner Martha Stark said her investigators are spot-checking stores on a continuing basis. "We are enforcing the regulations," she said.

City officials argued the tax increase was necessary to help close the $5 billion budget gap and to deter smoking.

"This tax increase is more about saving lives - mostly about saving young lives - than it is about revenues, for if we collect $100 million a year in cigarette tax revenues, that really is not significant considering that our estimate for total tax collections is $14 billion for the year," Stark said.

Even though fewer packs of cigarettes are being sold, she said, revenues have increased because of the tax hike. This July, cigarette revenues for the city were $12.3 million, Stark said, while in July 2001, the revenues were $2.3 million.

Wholesalers said that figure doesn't take into account the lost revenues to the city and state from other taxes, including $15 a carton in state taxes, and an additional $5.60 in taxes shared by the state and city.

"This new tax is negative revenue producing. The city and state will have a net loss of $250million a year," said Leonard Schwartz, president of Globe Wholesale Tobacco Co. and chairman of the Tobacco Association of the State of New York.

"Thirty-five million cartons were sold in the city last [fiscal] year; they're going to lose 18 million cartons," he said, predicting that legitimate cigarette sales would drop further in the coming months.

Whatever their differences over tax revenue collections, Schwartz, Stark and law enforcement agencies all agree on one point: The city is awash in black market cigarettes.

But the Finance Department has only 16 investigators to patrol 13,000 retail stores licensed to sell cigarettes in the city, and those investigators also enforce other tax regulations.

Additionally, enforcement of city, state and federal laws on cigarettes is spotty, at best, in part because the ATF and the FBI, which is also responsible for tobacco regulations, give the issue a low priority.

Locally, few black market cigarette and phony tax stamp cases have been prosecuted. So the smugglers have nearly free rein, inspired as well by maximum federal sentences of six months in jail and/or a $1,000 fine. They have to be caught with a minimum of 300 cartons in order to be prosecuted.

Web unregulated

As for the Internet sales, the Web is entirely unregulated.

A recent U.S. General Accounting Office report said untaxed Internet sales of cigarettes will reach $5 billion nationwide by 2005, and states "will lose about $1.4 billion from those sales."

Nearly all the 47 New York State Internet sales sites are run by Native Americans whose operations are not taxed under federal law, and who pass those savings on to consumers. Premium brands are available at $28 to $33 a carton.

In theory, the buyer is supposed to pay city and state sales taxes on purchases of more than two cartons.

"But nobody is enforcing that; it's impossible to enforce, although we'd like to," Stark said.

A law banning untaxed Internet cigarette sales in New York was declared unconstitutional after a challenge by Brown & Williamson Tobacco and Santa Fe Natural Tobacco Co., a Native American brand. A Manhattan federal judge ruled that only the federal government has the right to regulate interstate commerce.



TOPICS: Culture/Society; News/Current Events
KEYWORDS: pufflist
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To: kattracks
The $200M is not "lost". People are keeping a bit more of their own money instead of coughing it up to Big Stupid Government.

I fail to see a problem here. Go smugglers!

If government won't restrain itself, perhaps we can even find additional ways to strangle it.

21 posted on 09/23/2002 6:32:45 AM PDT by Hank Rearden
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To: sneakypete
"When it comes to smuggling and counterfeit stamps, traditional organized crime is involved, terrorist groups are involved and street gangs are involved," said John Dugan, the ATF's area supervisor for industry operations.

The ATF will blame anything on terrorists now in order to increase their budgets.

22 posted on 09/23/2002 6:36:48 AM PDT by kaboom
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To: WindMinstrel
More utter nonsense brought to us by the same government which dictates what size TOILET you can have in your own home.

Come to think of it... WHEN was the last time that government came up with a really good idea???

23 posted on 09/23/2002 6:38:57 AM PDT by TheGrimReaper
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To: MrB
"When it comes to smuggling and counterfeit stamps, traditional organized crime is involved, terrorist groups are involved and street gangs are involved," said John Dugan, the ATF's area supervisor for industry operations

And you and your statist friends set up the conditions favorable for these elements to get involved, Mr Dugan.

So what should you do now? Drop the taxes or spend more public money to combat tobacco crimes?

When the government waylays consumers with excessive and unjustified taxation such as this - then it is they who are supporting organized crime and street gangs.

If they didn't know this was going to happen, then they're even bigger fools than I thought.

24 posted on 09/23/2002 7:03:35 AM PDT by kcpopps
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To: Just another Joe
If they say they didn't know this would happen, then they, quite simply, are IDIOTS - and have no business managing public affairs. Of course that was true when they raised the taxes in the first place.

Thanks for the ping Joe
25 posted on 09/23/2002 7:07:40 AM PDT by kcpopps
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To: CDHart; *puff_list; Just another Joe; Great Dane; Max McGarrity; Tumbleweed_Connection; red-dawg; ..
Well, now, just exactly what did these numbskull politicians think was going to happen? They have created a black market and should have been able to predict it. I have no idea what they use for brains. People are just supposed to sit around and accept their stupid edicts quietly and meekly, while they live high on the hog on our money. (See what you did? You got me started!)

Very true!  The lawmakers think we are all sheeple out here.  They are in for a rude awakening!  We have voted them into office and pay their salaries, just to have them turn around and stick it to us.  The time has come to just say NO to these idiots!

26 posted on 09/23/2002 7:10:08 AM PDT by SheLion
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To: RandallFlagg
Everyone who has ever sold anything online should call these people and thank them for lumping us in with criminals.

The FEDS better start with online auctions first! How can they collect taxes on one product and not the whole sheebang! This is rediculous!

27 posted on 09/23/2002 7:12:37 AM PDT by SheLion
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To: Hank Rearden
If government won't restrain itself, perhaps we can even find additional ways to strangle it.

I like that. A LOT!!!

28 posted on 09/23/2002 7:16:04 AM PDT by SheLion
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To: kattracks
I know this has been said already....

"This tax increase is more about saving lives - mostly about saving young lives - than it is about revenues...",

Uh...yeah...right.

Say hello to Prohibition two, I mean three.

29 posted on 09/23/2002 7:35:59 AM PDT by jjm2111
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To: kattracks
Nice pie chart. One thing missing though -- I'd like to see the manufacturer's profit. This would show, in graphic detail, the farce of "greedy corporations" and the reality of greedy government.
30 posted on 09/23/2002 7:36:04 AM PDT by robertpaulsen
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To: kaboom
The ATF will blame anything on terrorists now in order to increase their budgets.

This goes way beyond the ATF. They are looking for a piece of the "Office of Reich Security Office" pie. Just wait until Bubba "The Messian" Bush has that up and running,and then notice how THEY start creating "administrative crimes",just like the ATF does. Don't even need that "stroke of the pen" nonsense. All they have to do is make a administrative ruling,and publish it in the feral register.

Meanwhile,the Bush-Bots are all busy leading us in choruses of "If you're happy and you know it,clank your chains!"

31 posted on 09/23/2002 7:37:16 AM PDT by sneakypete
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To: kaboom
The ATF will blame anything on terrorists now in order to increase their budgets...

A local ATF spokesman said today that last night's earthquake was due to terrorist gun-runners and demanded that their budget be increased.
32 posted on 09/23/2002 7:37:34 AM PDT by jjm2111
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To: SheLion
! The lawmakers think we are all sheeple out here

They are correct. Remember reading these words?

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it

(list of abuses)

For imposing Taxes on us without our Consent:

Just think what the likes of Charles Carroll, John Adams, Button Gwinnett would have done about the government we have today

They are in for a rude awakening!

Anyone who thinks that the sheeple are going to do anything about it is in for a rude awakening. You're from New England aintcha? Look at who your senators are. Look at the voting records of your reps. Look at how popular that neo-Nazi fascist Guiliani is. All New Englanders are going to do is continue to vote for socialists because they are (statistically speaking, on the average) too stupid and too self absorbed to realize that government promises are sh!t nine times out of ten, and the tenth time the bureaucrats just take your own money and then pretend to give it back to you.

I saw conservative Bob Smith lose. When upChuckie Schemer, Jeffords, Kennedy, Dodd, Clinton, etc are tossed out on their butts then I'll believe that the politicians have a rude awakening coming. Until that time y'all in new england just practice saying "baaaaa" and get used to being treated the way a shepard treats his flock.

33 posted on 09/23/2002 7:41:40 AM PDT by from occupied ga
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To: WyldKard
If pot is legalized and taxed, this same type of thing will happen to pot prices. Then it will be legal and we'll have the bottleggers/gangs to deal with.

Eventually, you would hear about how much revenue is being lost from the people who grow their own. You think the WOD is bad now? Wait until there's lost federal/state/city revenue involved.

34 posted on 09/23/2002 7:44:00 AM PDT by robertpaulsen
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To: kattracks
No knock searches and asset forfieture are coming to a neighborhood near you.

This will look like the drug war soon. Stay tuned.
35 posted on 09/23/2002 7:48:28 AM PDT by Protagoras
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To: from occupied ga
too self absorbed

Too self absorbed. Truer words were never spoken! People wear blinders. As long as the people are happy in their own little worlds, they figure "Let the Government take care of itself." And that's what got us into this fix. The Government IS taking care of itself, and to hell with the rest of us.

And yes, living in New England is rough. Too many liberals at the helm. It's driving me nuts!

36 posted on 09/23/2002 7:52:46 AM PDT by SheLion
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To: robertpaulsen
If pot is legalized and taxed, this same type of thing will happen to pot prices.

When pot is legalized, I predict that many people will grow their own and most pot will be tax untouchable.

37 posted on 09/23/2002 7:52:51 AM PDT by Protagoras
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To: robertpaulsen
Then it will be legal and we'll have the bottleggers/gangs to deal with.

When it is RElegalized, there will be no need for bootleggers and gangs.

You are talking about taxes here, there will always be tax avoidance. The amount depends on the level of taxation.

38 posted on 09/23/2002 7:55:46 AM PDT by Protagoras
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To: SheLion
It's driving me nuts!

Sorry to hear it. It's bad here, but at least we have a few vestiges of freedom left. I can't imagine living in police states like MA or NY.

39 posted on 09/23/2002 7:57:33 AM PDT by from occupied ga
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To: kattracks
"City officials argued the tax increase was necessary to help close the $5 billion budget gap and to deter smoking." I could teach my dog the concept of optimum pricing. I wonder if theses city officials are perhaps taking bribes for creating the a favorable black market environment.
40 posted on 09/23/2002 7:58:26 AM PDT by TBall
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