Cigarette Excise Taxes Link to Black Market Sales | NACS Online – Media – News Archive
Sign In Help

The Association for Convenience & Fuel Retailing

Skip Navigation LinksNACS Online / Media / News Archive

Cigarette Excise Taxes Link to Black Market Sales

The notion that increasing cigarette excise taxes will discourage underage smoking is refuted by NACS.
April 1, 2013

​MCLEAN, Va. – To reduce the rate of teen smoking, one side of the coin believes that raising taxes on the cost per pack is the answer. Teens are price sensitive, so making the price of cigarettes more expensive will cause them to walk away. States where cigarette prices are high have lower teen smoking rates, while rates are high in states with more affordable prices.

But the other side of the coin — one that refutes the notion of higher cigarette excise taxes as a means to reduce teen smoking rates — makes clear that there is a direct correlation between increased excise taxes on cigarettes and black market sales.

NACS Senior Vice President of Government Relations Lyle Beckwith, in a USA Today op-ed, says that part of the decline in teen cigarette use, according to surveys by the Substance Abuse and Mental Health Services Administration, is because of the efforts by legitimate retailers to ensure that underage customers are denied the ability to purchase tobacco products in their stores.

“Seventeen years ago, the convenience retailing industry helped form the We Card coalition to train retailers how to prevent underage sales. Before We Card, minors were able to purchase tobacco 76% of the time. Since implementation of We Card, that rate has decreased every year. The most recent Food and Drug Administration data show that after more than 140,000 inspections nationwide, the number has dropped to 5.65%,” said Beckwith, adding:

“Attempts to further this progress through excise tax increases, however, have had negative effects on both tobacco control efforts and responsible retailers. There is a direct correlation between increased excise taxes and black market sales. …Tax hikes have caused a nationwide black market for cheap illicit cigarettes. That has led to contraband cigarettes robbing state and federal governments of more than $5 billion in taxes — about 16% of total federal and state cigarette excise taxes collected annually.”

And as cigarette excise tax rates increase, so does the proliferation of black market sales.

“The states with some of the highest illicit sales (New York, Rhode Island and Washington) are among those with the highest taxes. In New York, with the highest tax rate in the nation, nearly half the cigarettes sold are contraband,” said Beckwith, adding the source of these contraband cigarettes varies from low-tax states, to Native American reservations, to illegal and counterfeit product smuggled in from overseas.
“Simply raising the tax rate in low-tax states will not deter smugglers; it will only shift them to other low- or no-tax sources. This problem has been created and exacerbated by the constant rise in excise taxes,” he continued.

“In a perfect world, convenience stores would be agnostic about tobacco tax increases. As long as everyone is paying the tax, we all compete on a level playing field. But it is not a perfect world. …Study after study shows that attempts to socially engineer behavior through increased taxes produce a far different outcome than intended, with the black market the main beneficiary.”