Black Market Flourishes Under New York’s High Tobacco Taxes

A new survey found that 56.8% of all cigarettes smoked in New York were illegal.

November 22, 2017

ALBANY, N.Y. – High tobacco taxes in New York have fueled its black market for cigarettes, according to a new national survey by the Tax Foundation, the Daily Star reports. The survey estimated that 56.8% of all cigarettes smoked in the state came from illegal sources.

New York has the highest rate of smuggling among all the states, and the survey pointed to the fact that it also has the highest state cigarette tax ($4.35 per pack, with New York City tacking on an extra $1.50) in the country. Contraband cigarettes in the Empire State has jumped close to 60% since 2006, during which the cigarette tax rate skyrocketed 190%.

The flourishing back market for cigarettes has hurt independent and chain retailers across the state, said James Calvin, director of the New York State Association of Convenience Stores. He pointed to the lack of planning to deal with illegal trafficking when lawmakers began raising tobacco taxes as paving the way to today’s contraband problem.

“What's going on now is costing legitimate licensed retailers and wholesalers billions of dollars in sales,” he said. “That money could have been used to reinvest in New York businesses and increase employment in New York.”

New York officials countered that they have safeguards in place, such as revoking state-issued licenses for alcohol or lottery tickets of retailers who sell contraband tobacco to deter smuggling. But Calvin said that it’s too little, too late, adding that the “cigarette strike force” launched in 2014 didn’t make significant inroads on stopping tobacco smuggling.

“The problem is that the black market infrastructure has become well-established,” he said. “Once the black market has developed a regular customer base, it becomes almost impossible for the state to muster enough resources to halt the illegal trade because of the scale of pervasive tax evasion.”