With tobacco taxes sky high and citizens counting cash in a recession, cigarette smuggling is more common than ever, but states are cracking down in an effort to solve budget woes, the Wall Street Journal reported.
Florida, Maryland, Michigan, New York, Rhode Island and Virginia are among the States that stepped up law-enforcement efforts this year to recoup taxes lost to bootleg cigarette sales.
Studies show states are losing about $5 billion annually in tax revenue because of illegal tobacco sales, Phil Awe, who heads the tobacco-diversion division of the Bureau of Alcohol, Tobacco, Firearms and Explosives told the Wall Street Journal.
“We do not want to have our tax laws ignored and lose tax revenue from legitimate sales of cigarettes,” added Maryland State Comptroller Peter Franchot. He estimated his state is losing “hundreds of thousands of dollars” annually.
As states seek new revenue to avoid cutting services and raising taxes to balance the budget, officials are not only cracking down on smuggling, but some are contemplating revising current laws or creating new ones that could force out-of-state online retailers to collect sales taxes.
In the case of cigarette schemes, authorities see more organized crime and international rings replacing mom-and-pop operations. As a result, many local jurisdictions are joining with federal authorities to target trafficking. The board that conducts field inspections of retail stores to insure proper payment of taxes, said in the past five months it has conducted seizures at 157 retailers in its 16 local jurisdictions, more than three times the total from the same time last year.
The excise taxes on cigarettes have smugglers buying cigarettes legally in lower-tax areas and reselling them in states with higher tax rates, stealing state tax stamps and manufacturing counterfeit cigarettes.
In one case in Fairfax County, Va., federal and local authorities arrested two men and charged with exchanging one kilogram of cocaine with an undercover ATF agent in exchange for 3,000 cartons of cigarettes. According to federal documents filed in the case, the men planned to resell the cigarettes in Yonkers, N.Y., where cigarette taxes total $4.25.
“They were willing to trade cocaine for cigarettes. That tells you about the profit margin they saw on the cigarettes,” said Edgar Domenech, who heads the ATF’s Washington, D.C., field division. Domenech said a kilogram of cocaine can go for $30,000 on the street.
“People have smuggled cigarettes from North Carolina and Virginia up north in the past, but we haven’t seen the volume we are seeing today where it’s tracked by the trailer load,” Capt. Dennis Wilson, commander of the criminal-intelligence division for the Fairfax County police, who are working with the ATF told the Wall Street Journal.