New York tops nation for inbound tobacco smuggling, report says

New York tops the nation for inbound tobacco smuggling, according to a new report, which attributes the thriving underground market to the state's high tax burden and anti-smoking policies.

The nonpartisan Tax Foundation report ranked New York highest in the nation for inbound illegal tobacco smuggling, with an estimated revenue loss of more than $1 billion in 2022. The report estimates that 54.3% of the cigarettes consumed in the state come from the illegal market.

The report said the move by other Northeast states to raise cigarette taxes and ban certain tobacco products has made cigarette smuggling both a national problem and a lucrative criminal enterprise.

"Higher tax rates incentivize smuggling," said Adam Hoffer, the group's director of excise tax policy. "Growing cigarette tax levels and differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise."

Hoffer said consumers often seek tobacco products in states where tax rates are lower and dealers "develop black and gray markets to sell illegally to consumers, paying little or no tax at all."

New York has the highest cigarette taxes in the nation, charging $5.35 in excise taxes per pack, compared to $3.51 in neighboring Massachusetts and $3.08 in Vermont. The state increased the rate by $1 per pack in 2023. New York City levies an additional excise tax of $1.50 per pack, bringing the combined tax rate to $6.85 in the Big Apple.

The state's enforcement officials have been seizing a sizable amount of banned and untaxed vaping products linked to cross-border smuggling in recent years, including a 2023 New York City raid where authorities seized more than 1,800 cartons of cigarettes and $155,000 in cash. That's costing the state millions of dollars a year in anti-smuggling enforcement, according to the report.

"But even when successful, policing smuggling is costly and only prohibits a drop of water in the East River of smuggling activity," the report's authors wrote. "The 2023 seizure of 18,000 cigarette packs represents 0.007 percent of estimated annual smuggling activity in the state."

New York experienced the largest loss of revenue from tobacco smuggling between 2007 and 2022, or an estimated $21.1 billion. The next largest sums of forgone revenue during that time frame were California ($12.7 billion), Texas ($7.2 billion), and Washington ($4.3 billion), according to the report.