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States Lose Big on Sales Tax from Smuggled Cigarettes

By Brian Greer on Tue, Sep 25, 2018 @ 09:25 AM

According to a recent op-ed written by Alcohol and Tobacco Enforcement Branch chief, Joe Fox, and published in the Washington Post, states across the nation are losing billions of dollars in tax due to cigarette smuggling.  Here are the details.

  • As many as one-fifth of all cigarettes purchased in the United States each year are sold illegally, the report stated.  This equates to about 3 billion packs, and results in $3 billion to $7 billion in lost tax each year.
  • In 2015, the U.S. State Department released a report in which it stated that proceeds from illegal tobacco smuggling in the U.S. was funding terrorist organizations, including Al-Qaeda, Hamas, Hezbollah and the Taliban, Fox wrote.
  • Virginia, in particular, is a target for cigarette smuggling due to the state's low excise tax, which allows criminals to legally buy cigarettes there and then sell them on the black market in states with a higher tax.  In 2012, the Virginia State Crime Commission noted that cigarettes have a higher margin of profit than cocaine, marijuana, heroin, or guns, Fox reported.
  • A Frederick County man was recently sentenced to 2 1/2 years in prison and fined $14.3 million for his role in a cigarette smuggling ring that cost states $40.2 million in lost tax revenue.
  • In addition to billions of dollars worth of lost tax revenue, Fox noted, the illegal tobacco smuggling trade also causes states across the country to lose control over their ability to control the price and supply of cigarettes, and thwarts attempts to curb tobacco consumption.
  • Recent budget cuts within the U.S. Justice Department's Bureau of Alcohol, Tobacco and Firearms have caused an increase in these illegal activities.
  • Fox is calling on Congress to address the problem through legislation, as well as lawmakers in states such as Virginia.
Brian Greer

Written by Brian Greer