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The Verde Independent | Cottonwood, Arizona

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3/26/2014 1:28:00 PM
Report: High cigarette tax fuels black market in Arizona
This map by The Tax Foundation shows the estimated percentage of cigarettes consumed in each state during 2012 that were smuggled. (Graphic by The Tax Foundation)
This map by The Tax Foundation shows the estimated percentage of cigarettes consumed in each state during 2012 that were smuggled. (Graphic by The Tax Foundation)
Taxes and Percentage of Cigarettes Smuggled
1. New York - $4.35 per pack - 56.9 percent

2. Arizona - $2.00 per pack - 51.5 percent

3. New Mexico - $1.66 per pack - 48.1 percent

4. Washington - $3.025 per pack - 48 percent

5. Wisconsin - $2.52 per pack - 34.6 percent

6. California - 87 cents per pack - 32.7 percent

7. Rhode Island - $3.46 per pack - 32.4 percent

8. Texas - $1.41 per pack - 31.4 percent

9. Utah - $1.70 per pack - 27.7 percent

10. Michigan - $2 per pack - 27.6 percent

Source: The Tax Foundation

Cronkite News Service

PHOENIX - A cigarette tax higher than neighboring states and cheaper prices on American Indian reservations have helped fuel a growing a black market for cigarettes in Arizona, according to a study by a Washington, D.C., think tank.

The Tax Foundation, a nonpartisan group that advocates for transparent and broad-based taxation, estimated that smuggled cigarettes made up 51.5 percent of Arizona's cigarette consumption in 2012.

While Arizona taxes cigarettes at $2 per pack, the taxes in neighboring states range from 80 cents per pack in Nevada to $1.66 per pack in New Mexico. American Indian reservations also are less-expensive sources of cigarettes.

"All this works in concert to make it a very profitable market," said Scott Drenkard, economist at the Tax Foundation.

Arizona's estimated percentage of smuggled cigarettes ranked second in the report to 56.9 percent in New York, which had the nation's the highest tax per pack at $4.35.

The report estimated that smuggled cigarettes accounted for 32.1 percent of Arizona's cigarette consumption in 2006.

Drenkard said cigarette taxes have created a situation similar to Prohibition, which saw a black market.

"People will find a way to produce it illegally and that market will spring up, much as it did in the '20s with alcohol," he said.

The casual smuggler is an individual who buys a pack or two of cigarettes while in another state because of the lower taxes, Drenkard said. That phenomenon is increasingly common in the eastern U.S. where states are close together and there are big differences in excise taxes, he added.

But Drenkard said smuggling can also be more formalized.

"People work in organized fashion to bring cigarettes from low tax areas to a high tax area and profit," he said.

Drenkard said a burgeoning black market costs states not only tax revenue but the ability to control sales to minors. "That's against the goals of public policy," he said.

Adam Chodorow, a professor at Arizona State University's Sandra Day O'Connor College of Law, said taxes can serve two purposes: raising revenue and discouraging certain behavior. A black market has the potential to cut into revenue that goes toward preventing people from starting to smoke and helping people to quit, he said.

"It's not clear what would happen if we shut the black market down, if we funneled people back into the regular-taxed system. They might smoke less, in which case we're not going to raise more revenues," he said. "They might go out of state to get their cigarettes in places where they have lower taxes."

In an emailed statement, the Arizona Department of Revenue said the study's variables could logically produce the results, but it said the report doesn't match what the department has seen.

"In the course of our inspections and other enforcement activity, the Department's Tobacco Enforcement Unit has not experienced this alleged high level of cigarette smuggling," the statement said.

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Reader Comments

Posted: Sunday, March 30, 2014
Article comment by: Hurting Clarkdale?

No. Just annoying to puritanical control freaks.

The smoke shop makes perfect sense to both the proprietors of the store and the smokers who enjoy their habit.

80-90% of traffic? Absurd!

Posted: Saturday, March 29, 2014
Article comment by: Reservation Cigarettes Hurting Clarkdale

80 to 90% of the traffic in Clarkdale on the weekend is for the reservation smoke shop. The reservation gets none of the traffic burden because the shop faces a public street in Clarkdale. Additionally, the shop is a stone's throw from the Clarkdale elementary school. It is a horrible situation that brings traffic, pollution, trash, and safety issues to a town that gets nothing in return for the problem (no tax revenue). HOW DOES THIS MAKE SENSE?

Posted: Saturday, March 29, 2014
Article comment by: Frank Lee Confused

A Cigarette tax is a tax on stupidity.

Posted: Saturday, March 29, 2014
Article comment by: mad max

Although cigarettes kill more people than probably anything, hearing this makes me proud to be an American. People are fighting back against the governments' " we'll do whatever we want " attitude. Just around the corner is pot legalization. Let's keep it rolling people, we have the numbers to turn this country around!

Posted: Thursday, March 27, 2014
Article comment by: Slater Slater

Oh by the way Black market?Sounds like a
lawsuit to me.

Posted: Thursday, March 27, 2014
Article comment by: DIY Earth Mother

They must have processed it somehow before industrialization, chemicals and BigTobacco.

Like with vegetables, eggs, etc. Homegrown is always better.

Either way it is still cheaper to buy a machine, supplies and tobacco to roll yer own.

Posted: Thursday, March 27, 2014
Article comment by: Slater Slater

At least Arizona has a market for something.

Posted: Thursday, March 27, 2014
Article comment by: N. Forsment

Tobacco-sniffing dogs and expanded confiscation of personal property.

Posted: Thursday, March 27, 2014
Article comment by: Good luck, Carl

You ever tried to grow tobacco? And if you managed that, ever tried to process it?

You'd be better off bootlegging beer.

Posted: Wednesday, March 26, 2014
Article comment by: Carl Nye

How about we just grow our own... tobacco? Oh wait, there's probably an obscure Arizona law that says if you live within 25 miles of a store that sells cigarettes, you are not allowed to grow your own.

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