WASHINGTON – Increased excise taxes on cigarettes have created lucrative incentives for black market trafficking between states, with illegal sales on the rise nationwide, according to a new report from the nonpartisan Tax Foundation.

Released last week, the report’s key findings include:

• Large differentials in cigarette taxes across states create incentives for black market sales.
• Smuggled cigarettes make up substantial portions of cigarette consumption in many states, and greater than 25% of consumption in 12 states.
• The highest inbound cigarette smuggling rates are in New York (56.9%), Arizona (51.5%), New Mexico (48.1%), Washington (48%) and Wisconsin (34.6%).
• The highest outbound smuggling rates are in New Hampshire (24.2%), Wyoming (22.3%), Idaho (21.3%), Virginia (21.1%) and Delaware (20.9%).
• Cigarette tax rates increased in 30 states and the District of Columbia between 2006 and 2012.

“Public policies often have unintended consequences that outweigh their benefits,” says Tax Foundation economist Scott Drenkard. “Dramatic increases in state cigarette taxes over the years have led to increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states. Growing cigarette tax differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise.”

Most smuggling cases start with criminals procuring discounted packs from low-tax states to sell in high-tax states, but may also include counterfeit state tax stamps, counterfeit versions of legitimate brands, hijacked trucks, or bribed officials turning a blind eye to illegal shipments.

Full Study: Cigarette Taxes and Cigarette Smuggling by State