As the tax reform debate begins to heat up, businesses and investors are beginning to pay closer attention to the House GOP Tax Reform Blueprint, a tax plan released last June by Speaker Paul Ryan and House Ways and...
- The Tax Policy Blog
- New Rhode Island Cigarette Smuggling Law is a Start…
New Rhode Island Cigarette Smuggling Law is a Start…
SB 2380, which substantially increases penalties for illegal cigarette sales in Rhode Island are now in effect after being signed by Governor Chafee. The legislation, signed into law last week, increases fines and imprisonment periods by as much as twenty times, and reclassifies violations as felonies. While such measures will discourage many potential criminals, they are not the most effective deterrent to illicit trade.
Crooked businessmen, albeit crooked, are still businessmen. They seek opportunities to maximize profit, and vast differences in state cigarette excise tax rates generously provide this opportunity. Cigarette packs are $3.20 cheaper in Virginia than in Rhode Island, offering smugglers a $32 profit margin per carton, and a $96,000 profit margin per van load. Subtract transportation and labor costs, and smugglers can pocket $95,500 for every delivery.
Penalties help to push back against this profit motive, but matter less to large scale, sophisticated operations, as they can invest substantial resources in minimizing the risk of being caught and profits grossly overshadow per-violation fines.
A few of these massive operations in Rhode Island have recently been exposed. Three years ago, four individuals were charged with illicit importation and sale of cigarettes which cost the state $5.7 million in forgone tax revenue, and just last year, seven individuals were indicted for a two-year-long smuggling operation that cost the state $1.05 million in forgone revenue.
While these enforcement victories are fully commendable, the likelihood of the existence of other large-scale smuggling operations remains. Peter F. Neronha, U.S. Attorney for the District of Rhode Island, forebodingly remarked in regard on the most recent trafficking indictments, “Our work to defeat this type of fraud continues on many fronts. There is certainly more to come.”
Perhaps Rhode Island should consider a much simpler, cost-effective, surefire approach to combating illegal sales: lowering its cigarette excise tax rate, which is the third highest in the nation. For every penny the tax is lowered, smugglers’ profit margin decreases by a penny per pack and smugglers are a penny per pack closer to shutting down operations.
For our latest report on cigarette smuggling, click here.
Get Email Updates from the Tax Foundation
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.
Related State Articles
- Lunch links: Mileage Vs. Gas Tax Experiment Begins in Colorado; Recounts Coming in Maine on Marijuana and Income Tax; Rhode Island Considers Catching Up with Neighbor States on Marijuana Legalization
- Lunch Links: Live TF Updates Tonight on Presidential Debate; Trump Plan Questioned on Whose Taxes Get Raised; IRS Stiffens Security for Online Access; Revenue Updates for North Dakota and Rhode Island
- Lunch Links: Congressman Beats State Tax Commission; Rhode Island Revelations; Paying Property Taxes with $1 Bills
- 1 of 30
- next ›