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Cigarette smuggling makes WA tax revenue go up in smoke

By   /   July 18, 2013  /   16 Comments

SMUGGLED: Store owners in Washington resort to smuggling out-of-state cigarettes to save money.

By Shelby Sebens  | Northwest Watchdog

Washington has a smuggling problem, exacerbated by a large tax gap with its neighbors.

The state’s tax on cigarettes is $3.02 a pack, compared to $1.18 in Oregon and 57 cents in Idaho. In the border cities of Washington, the ease of hopping the state line for cheaper smokes is just too tempting for some.

Washington’s Department of Revenue estimates the state lost about $376 million in tax revenue in 2012 to cigarette tax evasion. An estimated 35 percent of the cigarettes in Washington are contraband.

So who is doing it and how are they getting away with it?

Take Spokane, where officers of the Washington State Liquor Control Board recently busted two shops for selling cigarettes without the Washington tax stamp.

Lt. Rod Mittman of the liquor board’s enforcement division explained to Northwest Watchdog the process used by two stores that recently got caught selling smuggled cigarettes.

Step 1: Drive 20 miles to Idaho

Step 2: Buy 444 packs of cigarettes (the number of cigarette cartons confiscated by liquor control board officers)

Step 3: Remove Idaho state tax stamp

Step 4: Sell cigarettes tax free, in the open, as if nothing were amiss (“It was all out in the open,” Mittman said)

Step 5: This step depends on the luck of the store: you either get away with it or you don’t.

In the case of Bongs Grocery and Deli and the Super C Store, a citizen complained, leading to an investigation and criminal citation and confiscation of the smuggled cigarettes. Stores that smuggle cigarettes also risk losing their administrative license to sell tobacco, Mittman said.

Representatives from Bongs and Super C could not be reached for comment.

High cigarette taxes, intended to discourage the unhealthy habit and raise state revenue, have created a black market for cigarette sales across the country — from people sneaking cartons from states with lower taxes to a crime-plagued industry fueled by an influx of international cigarettes costing as little as 20 cents per pack.

A study by the Mackinac Center for Public Policy in January found cigarette taxes in some parts of the country are so high they create a “prohibition by price,” which has led to a spike in smuggling-related criminal activity. Mackinac found the black market grows as taxes rise.

New York had the highest number of smuggled cigarettes in 2011 — about 61 percent of the total market. New York also has the nation’s highest state cigarette tax at $4.35 per pack, plus another $1.50 levied in New York City.

In Washington, the smuggling is running faster than enforcement officers can keep up.

“There’s more out there than we find,” Mittman said.

When asked if Washignton should lower its tax, Mittman said, “the disparity of the taxes adds to the problem.” But he added it would help if Oregon and Idaho raised their taxes because he doesn’t see Washington moving toward a decrease.

Oregon lawmakers considered legislation that would have raised the tax anywhere from 10 cents to $1 a pack but it failed as part of a larger revenue bill that Republicans and Democrats couldn’t agree upon.

Contact Shelby Sebens at Shelby@NorthwestWatchdog.org

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  • vulgorilla

    Last time I looked it was perfectly legal to drive across state lines to legally purchase one or more items at a lower price. It’s called “people voting with their feet”. A lot of Californians are now doing it en mass on a permanent basis. It’s the American way.

  • rp3245

    It is legal for you, consumer, to do it, it is not legal for a retailer to avoid tax payment at re-sale when they are licensed. This is no different from sales taxes collected, alcohol, oil disposal environment tax, etc. – stop acting like this is some huge impingement on your freedom.

  • vulgorilla

    I sure the heck wasn’t talking about the retailers, and I didn’t say anything about selling anything as well. I guess you read what you want to read, eh?

  • rp3245

    Soooooo you make it a habit to just post comments that have nothing to do with the article then – merely to espouse an inane point of view that is not at issue? Guess you are a bigger clown than I thought. I guess while we are doing that then – Last time I checked it was perfectly legal to drive across state lines to legally purchase a sandwich on the cheap. It’s called “getting lunch”. A lot of humanity has been doing it for years.

  • Michael L Harp

    If I lived near either the Idaho or the Oregon border I would never, ever buy cigarettes in Washington. Frankly I’d buy damned little in Washington.

  • greginrva

    In Virginia they have tried to fix the “problem” by making it illegal to possess more than a certain amount of cigarettes. Very scary.

  • Joe Squid

    Gosh!
    I am shocked. SHOCKED, I tell you! Who could have foreseen this????
    Clearly, everyone, except the polidiots running Washington State! :-)

  • vulgorilla

    So troll, your reading comprehension isn’t real good eh? You certainly don’t dictate what I write, so back-pedal some more, troll, and y’all have a nice day, ya hear? …. troll! Bye Bye ….

  • Fred Chittenden

    WA has a similar problem with excessive liquor taxes. The taxOcrats don’t seem to understand how the marketplace works when it comes to pricing — go figure that many taxOcrats have limited private sector experience. To get more revenue, it’s sometimes best to reduce prices (and taxes). With lower prices, you’ll sell more product, thereby raising more revenue.

  • rp3245

    I assume you calling me a troll is supposed to make me feel bad or something. Maybe my words are too big for you to understand. If you are going to spout off comments that have nothing to do with the context of an article, you are just a clown looking for attention. I haven’t back-pedaled yet, so its clear to me you have limited education of vocabulary at the least, BOZO. We will all be glad when your circus leaves town, ya hear?

  • crosspatch

    Democrats always seem to live in their own little local bubble and can’t seem to every take a more abstract view and see what the result of their actions might be in a general holistic sense. They seem to get suckered in by their own wishcasting. Maybe they believe everyone thinks like they do, or something. They do seem to be complete blithering idiots when it comes to simple basic economics, though.

  • ceanf

    wonder how many cops they have devoted to ‘enforcing’ a ‘problem’ the state created for itself. i also wonder if those cops would be better utilized solving a real crime… a murder, robbery, rape, or assault… hell, even walking a damn beat would serve the people better than this. but then again, our police are no longer here to protect and serve. they are here to enforce the government’s whims, whatever they may be.

  • ceanf

    come on rp, you know the next ‘logical’ step for the fools who create ‘crime’ and ‘illegal’ with the stroke of a not-so-well intention-ed pen… the next cigarette law passed will make illegal, washington residents possessing more than an arbitrary amount cigarettes from another state.

    same thing happened in my home state, the people’s republic of maryland, after the all knowing nannys experienced the economic effect known as ‘diminishing returns’. it is now illegal for MD residents to possess more than TWO packs of cigarettes with a tax stamp from another state. i believe the penalty is a misdemeanor, punishable by a ~$1000 fine an 6 months in jail. so do not fret rp, the impingement on freedom is coming. and while even that may not trouble, i can assure you, they have way of making you a criminal, should the mood strike some young, politically ambitious prosecutor

  • ceanf

    it is because they can’t come to terms with the fact that things don;t work the way they think and want them to. the fact that people react badly to being told what to do by some rich, pompous government asshole who gets paid a whole lot to do virtually nothing but create laws that turn more and more people into ‘criminals’. all under the guise of protecting us. from ourselves, of course.

  • ceanf

    that’s the thing, its not about revenue. the idea that you can generate more revenue by taxing a product, while discouraging people from consuming that product, is ludicrous on its face. it is akin to a comapny running commercials trashing its own products.

    rather, it is about the defacto prohibition. these are the same people who would still be carrying the demon rum banner, were prohibition still in effect. in the end, it boils down to a class of people thinking it is OK for them to control what someone can, and can’t put into their body. and if they can’t have total prohibition, and total control, they will settle for determining how much, when, where, and at what price…

  • Diane Bast

    quick question: did the police confiscate 444 CARTONS or 444 PACKS?