Cigarette Smuggling Sends Washington Tax Revenue Up In Smoke
The State of Washington has a smuggling problem, exacerbated by a large tax gap with its neighbors.
The state’s tax on cigarettes is $3.02 a pack, compared to $1.18 in Oregon and 57 cents in Idaho. In the border cities of Washington, the ease of hopping the state line for cheaper smokes is just too tempting for some.
Washington’s Department of Revenue estimates the state lost about $376 million in tax revenue in 2012 to cigarette tax evasion. An estimated 35 percent of the cigarettes in Washington are contraband.
In Spokane, officers of the Washington State Liquor Control Board recently busted two shops for selling cigarettes without the Washington tax stamp.
Lt. Rod Mittman of the liquor board’s enforcement division explained the process used by two stores that recently got caught selling smuggled cigarettes.
Step 1: Drive 20 miles to Idaho.
Step 2: Buy 444 packs of cigarettes (the number of cigarette cartons confiscated by liquor control board officers).
Step 3: Remove Idaho state tax stamp.
Step 4: Sell cigarettes tax free, in the open, as if nothing were amiss. (“It was all out in the open,” Mittman said.)
Step 5: This step depends on the luck of the store: You either get away with it or you don’t.
In the case of Bongs Grocery and Deli and the Super C Store, a citizen complained, leading to an investigation and criminal citation and confiscation of the smuggled cigarettes. Stores that smuggle cigarettes also risk losing their administrative license to sell tobacco, Mittman said.
Representatives from Bongs and Super C could not be reached for comment.
Nationwide Black Market
High cigarette taxes, intended to discourage the unhealthy habit and raise state revenue, have created a black market for cigarette sales across the country — from people sneaking cartons from states with lower taxes to a crime-plagued industry fueled by an influx of international cigarettes costing as little as 20 cents per pack.
A study by the Mackinac Center for Public Policy in January found cigarette taxes in some parts of the country are so high they create a “prohibition by price,” which has led to a spike in smuggling-related criminal activity. Mackinac found the black market grows as taxes rise.
New York had the highest number of smuggled cigarettes in 2011 — about 61 percent of the total market. New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.
Faster Than Cops
In Washington, the smuggling is running faster than enforcement officers can keep up.
“There’s more out there than we find,” Mittman said.
When asked if Washington should lower its tax, Mittman said, “the disparity of the taxes adds to the problem.” But he added it would help if Oregon and Idaho raised their taxes because he doesn’t see Washington moving toward a decrease.
Shelby Sebens (Shelby@NorthwestWatchdog.org) reports for NothwestWatchdog.org, where a version of this article first appeared.