New Laws Impact Cigarette Smuggling

By Scott MacFarlane and Rick Yarborough
|  Tuesday, Nov 26, 2013  |  Updated 9:10 PM EDT
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States around the country are cracking down on the rising problem of cigarette smuggling with tougher enforcement and legislation, but could those news laws actually contribute to the black market?

Scott MacFarlane & Rick Yarborough

States around the country are cracking down on the rising problem of cigarette smuggling with tougher enforcement and legislation, but could those news laws actually contribute to the black market?

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States around the country are cracking down on the rising problem of cigarette smuggling with tougher enforcement and legislation, but could those news laws actually contribute to the black market?

Walk inside a room at the New York City's Sheriff Office and the problem is evident. Six months of unannounced inspections at New York City stores have caught close to a quarter million dollars in smuggled or counterfeit cigarettes for sale. The piles of cigarettes reach from the floor to the ceiling.

"My job is to make it very, very difficult for them," said Sheriff Edgar Domenech.

His inspectors have been trained by the industry to root out counterfeit cigarettes, mainly coming from China.

But the smuggled cigarettes, they're coming straight up the Interstate 95 corridor from Virginia. And it can be a profitable business.

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"You can make about $6,000 in one afternoon, by loading up a Chevy impala and driving it up to New York City," according to Scott Drenkard, an economist who studies cigarette smuggling with the non-profit Tax Foundation. “We found that about 20 percent of the cigarettes purchased in Virginia end up flowing into other markets."

Virginia is such a hot spot because of its low tax on cigarettes -- 30 cents per pack compared to New York's more than $4.

"Buy it for $45 a carton and then turn around and sell it in New York for 100," Paul Carey, of Northern Virginia Cigarette Tax Board, told the News4 I-Team.

The smugglers are also getting more organized, Carey said, now using stolen gift cards to buy cigarettes and setting up phony companies to buy in bulk.

“We've identified like 25 different businesses that are fake," said Carey.

States are fighting back, too, with more enforcement.

"We're out almost on a daily basis," said Bedell Terry, of D.C.’s Office of Tax and Revenue.

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And his inspectors almost always find untaxed cigarettes. To try to combat tobacco use, D.C. is also considering raising the purchase age for cigarettes to 21, something New York recently did. Dozens of states have also raised cigarette tax rates. Maryland is considering another hike next year. Those could reduce smoking, said Drenkard, but also ramp up smuggling in those states by pushing people to buy on the black market.

“The states that are driving it are actually high-tax states," Drenkard said.

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