Cigarette Smuggling Can Make You $4 Million Dollars Richer

That’s according to the Virginia State Crime Commission, who recently released a draft report on illegal cigarette trafficking. Cigarette smuggling occurs when organized criminals perceive they can make a profit from buying or stealing cigarettes in low excise tax states and selling them in high excise tax locales.

The report estimates that a smuggler who packs up a truck with 800 cases of cigarettes in Virginia (excise rate of $0.30 per pack) and sells the cigarettes in New York City (state and local excise rate of $5.85) could make $4,080,000. According to an agent of the Virginia State Police, this means that illegal cigarette trafficking “now [has] a higher profit margin than cocaine, heroin, marijuana, or guns.”

Smugglers are aware of this profit. A blog from Reason yesterday dug up a few stories of busted bootleggers in just the last few weeks. Here are a few choice ones:

• “Last week, the Feds filed a forfeiture complaint seeking to seize an airplane, four semi trucks and $2.6 million in cash from a Kansas City, Mo.-based smuggling ring. Most of the cigarettes were sold in New York.
• Two weeks ago, a former Prince George’s County, Md. cop forfeited $2.7 million and was sentenced to five years in jail for providing protection to a cigarette bootlegging operation. Another officer pled guilty in May.
• Last week, a Northern Virginia couple who bought 400,000 cartons for transport to New York from undercover police agreed to forfeit cash, cars, and land.
• In August, an armed man hijacked a cigarette delivery truck in Galveston, TX.”

The lesson here is that tax competition exists, and in this case can have unintended, if not violent, results. It’s important that these costs are considered when states consider raising excise taxes on tobacco to rates that are far out of step with their neighbors.

For a map of state cigarette excise tax rates, click here.

Follow Scott Drenkard on Twitter @ScottDrenkard.