The boom in smuggling to avoid cigarette taxes — cbs news

More than half of the cigarettes sold in New York State are smuggled in from other places to avoid the Empire State’s taxes on smokes, which have soared nearly 200 percent since 2006, according to a report issued by the conservative Tax Foundation.

New York is the highest net importer of smuggled cigarettes illegal smokes account for 56.9 percent of the state’s total market. New York’s cigarettes tax is $4.35 per pack, the country’s highest. The situation there isn’t unique. The Tax Foundation also cites a study that found that 58.7 percent of discarded cigarettes found in five Northeastern cities lacked proper tax stamps.

Taxes on cigarettes, which are designed to discourage smoking, vary widely. States such as Missouri, North Carolina and Virginia have levies of less than a $1 per pack. These wide differences make smuggling «both a national problem and a lucrative criminal enterprise,» according to the Tax Foundation.

Antismoking activists have long argued that fewer people will buy cigarettes if they’re expensive. Chicago recently raised its cigarette taxes for that reason. Combined with state and local levies, the total is now $7.17 a pack.

The smuggling problem «is a lot smaller than the study lets on,» said Thomas Carr, director of national policy at the American Lung Association, noting that the Tax Foundation’s data come from the Mackinac Center for Public Policy, which has received funding from the tobacco industry. «Tobacco companies are generally against higher tobacco taxes.»

In neighboring New Jersey, convenience store owners are fighting efforts by the state legislature to impose new taxes on e cigarettes that would nearly double their cost. E cigarettes fans tout them as a healthier alternative to conventional smokes.

Activists such as the American Lung Association, however, argue that no evidence backs up that claim and others, such as e cigarettes help people stop smoking regular cigarettes. Nonetheless, electronic smokes are surging in popularity, and experts note that should disparities in e cigarette taxes develop among the states, they could also become attractive to smugglers.

«I would imagine it would be easier to smuggle electronic cigarettes because they are smaller,» says Tax Foundation economist Scott Drenkard. «If you have any kind of differential, you are going to see arbitrage.»

Beyond interstate trade, cigarette smuggling is a global problem.

Last year, law enforcement officials seized $4.5 million worth of counterfeit Chinese cigarettes in Brooklyn, N.Y. Media reports indicate illicit cigarette production has soared in China in recent years.

Ukraine is another source of ill gotten smokes. According to the International Consortium of Investigative Journalists, the European country, currently involved in a dispute over Crimea with Russia, boasts the world’s cheapest cigarettes at $1.05 per pack.

Cars and trucks filled with Ukrainian made Marlboros and Viceroys get waved through border checkpoints by customs guards who seem more than eager to accommodate, for a price,» the consortium says. «Loads also move by bus and train, bound for other European countries where high taxes make packs cost as much as $5 (Germany) or $10 (United Kingdom).»

E-cigarettes target youth with festivals, lawmakers say (1) — businessweek

E cigarette makers aim to hook youth on their products using music festivals, free samples and candy flavored versions, U.S. Democratic lawmakers said.

The findings, in a survey released today by members of Congress, should prod U.S. regulators to curb the industry, the lawmakers said. While e cigarettes currently are unregulated, the Food and Drug Administration is working on a plan that would extend its tobacco oversight to the products.

Six of nine companies surveyed had sponsored or provided free samples at 348 events in the last two years, including the Bonnaroo and Coachella music festivals and Grand Prix races. Six companies including Green Smoke, acquired April 1 by Altria Group Inc. (MO US) and Lorillard Inc. (LO US), also offer flavors such as cherry crush and vanilla dreams.

These are the same tactics that were used by major cigarette manufacturers before they were banned, said U.S. Representative Henry Waxman, a Democrat from California, on a conference call. Our findings demonstrate the FDA regulation of e cigarettes is necessary to prevent manufacturers from targeting youth with aggressive marketing practices.

E cigarettes are battery powered tubes that simulate the effect of smoking by producing nicotine vapor. E cigarette smokers are sometimes referred to as vapers. The FDA found there isn t enough information on the products to determine if they re less harmful than traditional cigarettes, according to a study published today in the journal Tobacco Control.

In October, the agency submitted a proposal to oversee the industry to the White House s Office of Management and Budget that authorizes all regulations. The proposal is still under review at OMB, according to the office s website.

Prod to Act

This report we re issuing today should be a prod for them to act, Waxman said.

The use of e cigarettes by middle school and high school students in the U.S. doubled to 10 percent in 2012 from 2011, the Centers for Disease Control and Prevention found in September. The agency has also said e cigarette related calls to poison centers rose to 215 a month in February, compared with one a month in September 2010.

Waxman and U.S. Senator Richard Durbin, a Democrat from Illinois, led the investigation. Durbin called e cigarettes a gateway to smoking rather than a cessation tool as some studies have asserted.

Regulation Urged

The congressional report calls on the FDA to assert its authority over e cigarettes and companies to immediately prevent the sale of the products to anyone younger than 18 and refrain from television and radio advertising. The FDA should ban flavored e cigarettes that appeal to youth and companies should stop selling them as well, the report said.

Altria has expressed support for FDA regulation, David Sutton, a spokesman for the Richmond, Virginia based company, said by telephone.

Obviously, we think that the agency should include an appropriate set of marketing regulations, Sutton said. Those regulations should allow the companies to communicate to adult vapers.

Sutton declined to specify the type of marketing regulation the FDA should impose.

NJOY has long supported sensible regulations, Whit Clay, a spokesman for the company at Sloane & Co., said in an e mail.

Reynolds American Inc. (RAI US) backs strengthening and updating state youth tobacco control laws to prohibit youth purchase of tobacco products, Jane Seccombe, a spokeswoman for the Winston Salem, North Carolina based company said.

$7.5 Billion in Sales

Bloomberg Industries estimates global e cigarette sales may reach $7.5 billion in 2015, compared with $3.5 billion last year. The sales projection almost cuts in half an October estimate of $14 billion in 2015 sales based in part on expected advertising restrictions.

Six e cigarette companies spent $59 million in 2013 to market their products, double the amount spent the year before. Seven of the manufacturers including NJOY and Reynolds have used radio or television advertisements, some featuring celebrities such as Jenny McCarthy. Seven companies also used social media sites such as Facebook and Twitter to market their products.

Twenty eight states have prohibited the sale of e cigarettes to minors while most companies had some type of restriction on youth sales.

Given the varied scope and company oversight of these policies, their effectiveness at restricting sales to minors is unclear, according to the congressional report.

To contact the reporter on this story Anna Edney in Washington at aedney

To contact the editors responsible for this story Reg Gale at rgale5 Angela Zimm, Andrew Pollack