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October 22, 2013

Tobacco tax seen as fueling black market

(Continued)

Citing data from the Mackinack Center for Public Policy and the nonprofit Tax Foundation, the Reynolds security official said smuggled cigarettes made up about 60 percent of cigarettes sold in New York in 2011, and he said the tobacco company is determined to fight the illicit trade, which undermines its business connections and supply network.

Grimaldi said organized crime brings tobacco from southern states up the “New Tobacco Road” of Interstate 95, and he said a truckload of cigarettes from Virginia would have the potential to yield $385,000 in Massachusetts by skirting the state’s taxes.

The excise tax on cigarettes in New Hampshire is $1.68 per pack — more than the 30-cents-per pack rate in Virginia, but well below the Massachusetts charge of $3.51 per pack.

“A lot of people don’t understand what is going on or the gravity of it. And it is huge, big, big business,” said Grimaldi, who said states should devote law enforcement to the specific crime, and said the Bureau of Alcohol Tobacco Firearms and Explosives has not made tobacco smuggling enough of a priority while Virginia has taken steps to reduce the trade.

He said, “Illicit cigarettes are now the currency of illegal organizations,” and cigarette smuggling is more lucrative and less risky than drug smuggling.

Northeast Association of Wholesale Distributors Executive Director Paul Caron described to his fellow commissioners how retailers will buy smuggled tobacco, keeping that under the counter for sale to regular customers while keeping some legitimate tobacco on hand for strangers.

He told the News Service that Massachusetts is “hemorrhaging tens of millions of dollars” through underground tobacco sales.

Department of Revenue chief economist Kazim Ozyurt said it is “hard to quantify” how much reduced sales are caused by people changing smoking habits versus buying illicit cigarettes, and he added that tobacco revenue is “pretty much on target with what we thought.”

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