Special Report

States Smoking the Most Smuggled Cigarettes

4. New Mexico
> 2013 consumption smuggled: 46.1%
> 2013 cigarette tax rate: $1.66 (17th highest)
> Smoking rate: 19.1% (23rd highest)
> Pct. point change smuggling rate (2006-2013): 6.2 (15th highest)

Cigarettes are smuggled primarily to dodge taxes. However, while more than 46% of all cigarettes consumed in New Mexico were smuggled into the state — the fourth highest share nationwide — the smuggling problem has not hampered tax revenue growth. New Mexico’s revenue from tobacco taxes grew by nearly 322% between 2002 and 2012, an exceptionally high rate compared to other states with smuggling problems, and the sixth highest in the country. The state’s cigarette tax of $1.66 per pack was not especially high in 2013, although it was higher than the national cigarette tax rate of $1.44. New Mexico does not border any states with net outflows of smuggled cigarettes. However, state residents can easily access nearby Indian reservations, where cigarettes are frequently sold at a steep discount.

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3. Washington
> 2013 consumption smuggled: 46.4%
> 2013 cigarette tax rate: $3.03 (4th highest)
> Smoking rate: 16.1% (6th lowest)
> Pct. point change smuggling rate (2006-2013): 8.2 (13th highest)

As in several other states where large shares of cigarettes were smuggled, Washington’s smuggling problem is largely regional. Many residents can easily cross state lines into Idaho, for example, where cigarettes are far less expensive. Idaho actually reported a net outflow of smuggled cigarettes in 2013, a portion of which likely ended up in Washington. Cigarettes were taxed at a rate of more than $3.00 per pack in Washington in 2013, the fourth highest such tax rate in the nation, while Idaho taxed cigarettes $0.57 per pack. The state also levies a spirits excise tax at a rate of $35.22 per gallon, the highest in the country. Washington legislators may be levying these relatively high so-called “sin taxes” to generate more revenue. The state’s reserves were estimated at 4.3% of the 2014 general fund expenditures, one of the smaller rainy day funds in the country.

2. Arizona
> 2013 consumption smuggled: 49.3%
> 2013 cigarette tax rate: $2.00 (9th highest)
> Smoking rate: 16.3% (8th lowest)
> Pct. point change smuggling rate (2006-2013): 17.2 (4th highest)

As in several other states with large inflows of smuggled cigarettes, most Arizona residents live near at least one major indian reservation, which often sell heavily discounted cigarettes. Even casual smuggling for personal consumption is likely appealing to state residents. State and local cigarette taxes rose 69% between 2006 and 2013 to a rate of $2.00 per pack, higher than the national cigarette tax rate of $1.44 per pack and the ninth highest nationwide. Unlike most states with high inflows of smuggled cigarettes as well as rising taxes, Arizona had a relatively large rainy-day fund. The state’s reserves equalled nearly 13% of general fund expenditures in 2014, one of the highest proportions.

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1. New York
> 2013 consumption smuggled: 58.0%
> 2013 cigarette tax rate: $4.35 (the highest)
> Smoking rate: 16.6% (10th lowest)
> Pct. point change smuggling rate (2006-2013): 22.2 (2nd highest)

New York State levies the highest cigarette tax in the nation at $4.35 per pack, and tobacco costs even more in certain areas. New York City charges an additional excise tax on cigarettes of $1.50, for example, bringing the total to $5.85. Between 2006 and 2013, New York’s cigarette tax rose 190%, the seventh largest rate increase in the country. State legislators are likely under pressure to raise taxes to generate revenue — the state’s reserves were equal to less than an estimated 3% of general fund expenditures last year, one of the lowest such proportions. The high cost of cigarettes in the state, together with the availability of discounted cigarettes in the nearby Oneida Indian reservation, largely account for the extremely high frequency of smuggling. In 2013, 58% of all cigarettes consumed in New York were smuggled — by far the highest such share nationwide — and up 22.2 percentage points from 2006, which was the second largest increase.