The Public Eye

Reports from the Bee's investigative team

September 22, 2010
California losing millions from illicit cigarette trade

cigs.JPGNational Public Radio last Sunday reported on the big bite the black market in cigarettes is taking out of state excise tax collection. Criminal trade in tobacco is incentivized by the disparity in tax rates across the country. Taxes on a 20-pack carton range from 17 cents in Missouri to a whopping $4.35 in New York. Smugglers make a lot of money buying up large quantities of cigarettes in low-tax states, such as North Carolina or Virginia, and transporting them to a high-tax states, such as New York or Rhode Island.

California's tax rate is relatively small at 87 cents a carton. Even so, tax evasion is active in the state where "$182 million a year is lost in unpaid excise taxes on cigarettes," according to BOE's Anita Gore, quoted in the NPR story. In August, for example, The Bee reported federal indictments in Los Angeles and Sacramento involving 21 people and five businesses who were charged with robbing the California of $35 million in unpaid tobacco taxes.

At the same time authorities battle tax cheats, state government is losing tax revenue just because people are spending less on tobacco. Last year cigarette sales plunged 8.1 percent, the biggest year-over-year drop since 2000. That was good for public health, but bad for state health programs which lost $74 million in funding.

PHOTO CREDIT: Joe Ilagan, owner of Joe's Discount Cigarettes + More shows the Benson and Hedges cigarettes that sell for $6.16 a pack plus tax at his store in South Sacramento. Manny Crisostomo / The Sacramento Bee

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