Policy

Sell 'Em if You Got 'Em: Cigarette Taxes Help Make Smuggling Smokes Profitable

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A draft report by the Virginia State Crime Commission, quotes a Virginia State Police Officer suggesting that cigarette bootlegging is now more profitable than trade in cocaine, heroin, pot, or guns.

To the extent that is true, it is possible in part because state and local taxes in high-tax states such as New York and Illinois can add $5 or more to the price of a pack of cigarettes compared to low-tax Virginia or Missouri.

A trunk or a truck filled with cases of smokes can yield a five-to-seven-figure payday. It's a temptation that many—including small-time criminals, cops, military personnel, convenience store owners, cigarette wholesalers, and organized crime—can't pass up.  A roundup of recent stories:

  • Last week, the Feds filed a forfeiture complaint seeking to seize an airplane, four semi trucks and $2.6 million in cash from a Kansas City, Mo.-based smuggling ring. Most of the cigarettes were sold in New York.
  • On Monday, thieves in Columbus, OH smashed a car into a convenience store and made off with 120 cartons of cigarettes—the 18th cigarette-related theft in the city since July.
  • Two weeks ago, a former Prince George's County, Md. cop forfeited $2.7 million and was sentenced to five years in jail for providing protection to a cigarette bootlegging operation. Another officer pled guilty in May.
  • Last week, Prince George's County, Md. prosecutors indicted nine cigarette smugglers caught in July and August. Maryland officials reported 115 cigarette trafficking violations in fiscal year 2011, which ended in June.
  • Last week, a Northern Virginia couple who bought 400,000 cartons for transport to New York from undercover police agreed to forfeit cash, cars, and land.
  • Last week, a man was charged with identity theft in La Crosse County, Wis. for using stolen credit card numbers to purchase cartons of cigarettes. More charges are pending.
  • In August, an armed man hijacked a cigarette delivery truck in Galveston, TX.

Military commissaries and PX stores—where no federal tax ($1.08 per pack) is assessed—and Indian reservations also supply the underground cigarette market, which is active and profitable even within states, as tax rates can vary between counties.

Cigarette smuggling has provided a revenue stream for organized crime for over 50 years. More recently, Al-Qaeda, Hezbollah, and MS-13 have profited from the trade. "Some violent gangs now are selling cigarettes, drug traffickers are selling cigarettes—there are definitely some violent people who are involved," Jeffrey Cohen, an associate chief counsel for the Bureau of Alcohol, Tobacco, Firearms and Explosives, told the Richmond Times-Dispatch.

In 2010, President Obama signed the Prevent All Cigarette Trafficking Act (PACT), which requires wholesalers, distributors and manufacturers to register with the ATF and file monthly invoices to authorities in each state where they do business. It also prohibits the mailing of cigarettes (with some minor exceptions).

Reason readers may have cause to doubt whether ramping up enforcement will curtail black market activity.