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What you need to know for 07/25/2017

Cigarette smuggling packing a wallop

Cigarette smuggling packing a wallop

A recent study carried out by the Mackinac Center for Public Policy, a Michigan-based nonprofit, fou
Cigarette smuggling packing a wallop
Cigarettes from the reservation are packaged in a bag of 200 — one carton's worth.

Every month or so, Carl Smith doesn’t go home at the end of his night shift.

Instead, as the sun rises, he drives north out of Amsterdam, 170 miles to an Indian reservation near the Canadian border. There’s a smoke shop up there that sells cartons of cigarettes for just $12.

“There’s no way you can beat that,” Smith said.

Smith isn’t this guy’s real name. He spoke to The Gazette on the condition of anonymity since his monthly cigarette runs constitute a misdemeanor under state law.

A regular carton of cigarettes — 10 packs of 20 cigarettes each — runs between $80 and $100 in New York. More than half of that price comes from state taxes. Reservation smoke shops don’t have to pay those taxes, which is why they can sell so cheap. It’s great for smokers, but the state looks at it as tax evasion — a criminal offense.

For Smith, cheap cigarettes are worth rolling the dice on criminal charges, and he’s not alone.

A recent study carried out by the Mackinac Center for Public Policy, a Michigan-based nonprofit, put New York at the very top of a rarely discussed list — top tobacco smugglers.

In no other state are so many cigarettes slipped under tax law. According to Mackinac Center numbers, 57 percent of all cigarettes smoked in New York are illegally trafficked to avoid high state taxes.

“I didn’t even think about it until I started studying this,” said Scott Drenkard.

Drenkard is an economist for the Tax Foundation, a Washington, D.C., think tank. He went over the Mackinac Center numbers and tried to explain why so many illegal cigarettes are smoked in New York.

“You’ve heard of the law of supply and demand,” he said, “but there’s also the law of replacement.”

New York collects $4.35 in taxes on each pack of smokes. Smokers also pay a dollar in federal taxes, and sales tax on each pack.

But New York’s tax is the highest cigarette tax imposed by any state in the United States. There are two reasons, Drenkard said, for such high tobacco taxes. The first is revenue.

“Whatever the government’s stated purpose,” he said, “revenue raising is a factor.”

The “stated purpose” is usually something paternalistic, such as encouraging smokers to cut back or quit, Drenkard said. But taxes don’t always have the desired effect. That’s where Drenkard’s law of replacement comes in.

“You can only raise the price of legal cigarettes,” he said.

Mostly illegal cigarettes come from states like Virginia and North Carolina, which have lower tobacco and sales taxes, or from Indian reservations. Drenkard wasn’t sure of the breakdown, but Smith said his reservation smoke shop is a local favorite.

“I once passed a car by Saratoga Springs,” he said, “Then saw the same car in the parking lot of the smoke shop. People come from all over. They’re making money hand over fist up there.”

Smith described his first visit to the reservation shop. He was up near Lake Placid on a vacation last year and heard rumors of $12 cartons for sale to the north — the promised land of smokers. He drove up to investigate.

“There were shelves along all the walls,” he said, “and boxes on the floor full of bags of cigarettes.”

Ever since, he’s been running north to get his smokes. The average haul is eight bags, each roughly a carton’s worth, but sometimes he also gets bags for his father, his son and a few friends.

Once he bought 40 cartons. That’s 8,000 cigarettes. That run alone lost New York state $2,000 and brought Smith dangerously close to a felony level offense, according to state police spokeswoman Jennifer Fleishman.

Fleishman’s main territory borders Canada and the reservation where Smith gets his cigarettes. She said it’s totally legal to buy a trunk full of reservation cigarettes, but quite illegal to leave the reservation with more that two cartons.

Three cartons is a misdemeanor. More than 10,000 cigarettes is a felony, as Ballston Spa resident William Bray found out last month.

Bray was pulled over for speeding on the Northway, and a trooper saw the cigarettes in his car. Bray is facing fines and felony charges.

Fleishman said Bray’s case is actually pretty rare.

“We mostly get people during traffic stops, if the cigarettes are in plain view,” she said. “It’s not too common.”

Since the Mackinac Center came out with their numbers, Gov. Andrew Cuomo formed a task force of state, federal and county law enforcement to crack down on untaxed cigarette trafficking, hoping to recoup some lost taxes.

“This new law-enforcement strategy will help to crack down on these illegal cigarette sales and capture those smugglers who seek to evade the law and rob the state of the revenue it is rightly owed,” Cuomo said while announcing his task force Monday.

Even while launching a task force, the state’s official position rejects the Mackinac Center findings.

“It’s our position that the Center has significantly overestimated cigarette consumption for New York,” Department of Taxation and Finance spokesman Geoff Gloak said in an email, “and therefore overestimated evasion.”

Gloak said the state Department of Health estimates the average New York smoker burns fewer than 200 packs per year. The Mackinac Center guesses roughly 50 percent higher, which Gloak said skews the results of their study.

Either way, law-enforcement agencies will be sharing data and working together to catch more cigarette smugglers.

Smith doesn’t worry too much about law enforcement. He said he can’t afford to worry.

“I don’t let it get to me,” he said. “I set my cruise control.”

For the past eight months, he said car payments seem lighter, his wallet thicker. High taxes on cigarettes didn’t work to slow his pack-and-a-half daily habit. It just cost him a lot of money, and eventually sent him on monthly road trips.

Smith’s case, Drenkard said, is pretty common. A good portion of the people buying and smoking untaxed cigarettes are what he called “normal people.”

“These are people who don’t do other criminal things,” he said, “but there are also cigarette smuggling rings.”

One 16-wheeler full of cigarettes purchased in Virginia and sold illegally with forged government stamps in New York would net the entrepreneurial driver $4 million.

Cuomo’s task force is trying to crack down on those rings, along with the Smith types, but Drenkard advocates a different course of action.

He said the state’s tobacco taxes should be lowered. As an economist, he said a high tobacco tax makes sense at first glance. Smokers get sick more often than nonsmokers, costing every other citizen money through Medicaid and Medicare. A cigarette tax could be thought of as a down payment on hospital bills.

“But if you look into it a little further,” he said, “it doesn’t work like that.”

While smokers do get sick more often, they also die, on average, younger than nonsmokers. That, Drenkard said, saves Social Security dollars and makes cigarettes a net gain for the country.

“By that logic we should subsidize the tobacco industry,” he said, “not that I think we should actually do that.”

Instead he said a simple sales tax on cigarettes would nearly do away with the state’s smuggling problem.

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