CIGARETTES TAX-FREE IN KIOSKS
By AGNES PALAZZETTI and TOM PRECIOUS
News Staff Reporters
An Indian nation from Central New York is placing tobacco kiosks in some Buffalo-area convenience stores that will allow the electronic mail ordering of tax-free cigarettes at a savings of up to $20 a carton. The move, a first according to industry officials, came Tuesday, the day before today's 39-cents-per-pack state tax increase. That increase brings the total state tax on a pack of smokes to $1.50, the highest in the nation.
The Oneida Indian Nation, the nation that operates the Turning Stone gambling casino at Verona, installed its first Internet-based tobacco kiosk in the Yellow Goose convenience store on Colvin Avenue, the first of six planned installations. Critics called it an obvious bid by the Oneidas and Yellow Goose to help smokers skirt today's tax increase.
And officials with State Attorney General Eliot L. Spitzer's office immediately pointed to potential legal problems because the kiosks could permit minors to buy cigarettes illegally. Furthermore, they claim, the plan may violate state tax laws by using a non-Indian-owned retail outlet as a conduit for selling tax-free cigarettes.
The marketing technique uses a touch-screen computer to allow smokers with a credit card to order most major cigarette brands tax-free from the Oneidas' Internet-based tobacco company near Utica. "This raises serious questions about the legality of the operation, and any retailer should think twice before installing one of these in their store," said Marc Violette, a Spitzer spokesman.
Oneida officials said they informed the Pataki administration in advance about their plans. State Tax Department officials declined to say if they were concerned about similar operations popping up across the state. "We're aware of the situation, and we're looking into it," said Marc Carey, the agency's spokesman. He would not say if his office thinks the kiosks might violate state law.
Using touch-screen technology like clerks use in fast-food restaurants, the smokers tap the screen to choose a product. A simulated keyboard then pops up to permit the customer to enter credit card and address information. Orders are usually received within a few days. Customers using the kiosk's computer are linked to a Web site run by the Oneidas that sells 52 brands of cigarettes - all free of state taxes. At the Oneida Web site, cigarette prices listed Tuesday were significantly below what smokers would spend at a non-Indian-owned retail outlet. The site sells brands from Kools, at $27.50 per carton, and Marlboros, at $33.50 per carton, to its cheapest brand, Grand Palace, at $10.50 per carton. There are 10 packs in a carton.
Mark S. Sidebottom operates the 33-store chain of Yellow Goose stores in Western New York. He refused to say Tuesday what financial incentive his company is receiving from the Oneidas for the kiosks' placement. Sidebottom did say the kiosks will be installed in five more stores, "and if they are successful, we will put them in all our stores."
The Oneidas and Sidebottom defended the system from critics who believe it may not be legal to permit non-Indians to purchase cigarettes from an Indian tobacco distributor but at a non-Indian retailer. "They really aren't any different than ordering cigarettes from the Oneida Indians from your home," Sidebottom said. "We simply are providing a service for those customers who don't have computers in their home." The cigarettes are sent from the Oneida Nation's distribution center on its reservation near Utica. Jerry Reed, an Oneida spokesman, said an Oneida-owned company also makes the kiosks. The Oneidas say that, as a sovereign tribe, they did not need state approval for the new tobacco venture.
The timing of the move by the Oneidas is curious. The tribe is actively working with the Pataki administration to try to settle a long-standing land claim in Central New York and to expand its existing casino operation - Turning Stone at Verona - into the Catskills.
Yet, observers at the Capitol say, the bid to help more smokers evade state sales taxes can only embarrass the Pataki administration, which has already been taking a hit over the years from non-Indian retailers for failing to collect taxes on reservation sales of tobacco and gasoline to non-Indians. The governor has fought attempts by non-Indian retailers to force the state to collect taxes on cigarette sales at reservation stores. The state did try to slow Internet sales of tax-free cigarettes by making it a crime for companies such as United Parcel Service to deliver cigarettes without a state tax stamp. But that law, which advocates say was needed to cut down on cigarette sales to minors, was struck down by a federal judge last year.
The Oneidas' bid to place the kiosks in an initial six Yellow Goose stores occurs in a region the Seneca Nation of Indians already considers its prime marketing area for tax-free cigarette sales. Seneca President Cyrus M. Schindler was unavailable to comment Tuesday.
After years of complaints by non-Indian tobacco retailers about the unfair advantage of Indian-owned stores, industry officials and anti-smoking groups say Yellow Goose has taken a simple approach: If you can't beat them, join them.
Retailers say a state policy that has sharply increased cigarette sales taxes over the past few years has cut sharpely into revenues of non-Indian stores. They say they can't compete in an environment that is pushing many smokers to buy cigarettes across state borders. Pennsylvania's tax, for instance, is 31 cents per pack. The head of the trade group for convenience stores in New York said the new cigarette sales tactic by Yellow Goose is a first in the state. "It's a reflection of the dire situation that convenience store operators are faced with under the state's tax policy," said James Calvin, executive director of the New York Association of Convenience Stores.
His group found, using state data, that tax-collecting retailers sold 51 million fewer cartons of cigarettes over a two-year period since the last tax increase in 2000, with much of that being picked up by cross-border and Indian sales. Calvin said it's not surprising Yellow Goose would turn to such an unusual means to sell cigarettes, which can account for one-third of convenience store sales in a year. He said most smokers aren't quitting as the state raises its taxes. They are merely finding ways to avoid the tax.
Anti-smoking groups called the move a scheme that keeps those smokers who may have been convinced to quit with the new higher taxes to remain as tobacco users. "We're concerned about anything that encourages tax avoidance," said Russell Sciandra, director of the Center for a Tobacco Free New York. "We support the tax increase because of the public health impact it will have in reducing tobacco use." Sciandra said he is also concerned that the new kiosk system will make it easier for teenagers to buy cigarettes.
Reed, the Oneida spokesman, said the six-carton minimum order and the required use of a credit card "will discourage teenagers from using the kiosks."
Larry Ballagh, who has a booming Internet business along
with a small cigarette manufacturing operation on the Seneca Indian Cattaraugus
Reservation, said he preferred to hold his comments until "I can take a
look at what the Oneidas are doing." "Of course," Ballagh added, "that
doesn't mean that six months from now I may not be knee-deep in this kind
A SELF-MADE PROBLEM
A move by the Oneida Indian Nation to put tobacco kiosks
in some Buffalo-area convenience stores, to allow electronic mail ordering
cigarettes, is a blatant end-run around this state's tax laws that threatens to reduce revenues at a time when the state can least afford it. And while we hate to say we told you so, we told you so.
Albany thinks it has found the economic version of the Fountain of Youth: Pass whatever health program sounds good, raise cigarette taxes to pay for...
here for the complete text of article
CIG TAX MAY LURE BUTT-LEGGERS
A new crop of cigarette smugglers is expected to blow into town if the proposed $1.50-a-pack tax hike is approved by the state and city this week.
A vanload of bootlegged smokes could earn a smuggler more than $100,000 in profit, those opposing the new tax predict.
Some bootleggers have already tested the market, said William McMahon, assistant special agent in charge of the U.S. Bureau of Alcohol, Tobacco and Firearms in New York.
"It's getting busier, that's for sure," he said. "It's going to be a big money-maker."
In February, two Chinese nationals were busted in Queens while selling cartons from the back of a rental van for $22. They ferried nearly 2,000 cartons from Virginia, where the tax is only $2.50 per carton.
Mayor Bloomberg called for the cigarette tax hike in his recent budget.
"You can fit 5,700 cartons in a standard van and potentially
make $170,000 on a load from an Indian reservation," said Richard Lipsky,
a lobbyist for local delis that stand to lose business if the city tax
goes through. "That's a tremendous incentive."
PSSST... WANNA BUY CIGARETTES?
A Testimonial - June 18, 2002
Well, it has already come to this. The other day some drug pusher in the street offered me cigarettes for $2. I don't know whether this was a cocaine pusher who had expanded his product line or a completely new entrepreneur. How long before there are turf-war shoot-'em-ups over cigarettes, and when will the first policeman be killed in a cigarette deal gone bad or a cigarette bust?
THIEVES BUTT IN ON CIG DEALERS
June 30, 2002
On the eve of the city's massive cigarette-tax hike, thieves decided to bum themselves a last-minute drag - by stealing tens of thousands of dollars worth of smokes in two heists.
The first theft was discovered at 5 a.m. when the owner of Parsons Mini Mart on Northern Boulevard in Queens arrived to begin his workday - only to find his shop had been burglarized overnight.
The owner of the Flushing shop, who asked that his name not be published, said he suspected something was wrong when he found the lock to the store glued shut.
After an hour, and a call to a locksmith, the owner got inside. There he found the shop ransacked and numerous missing items, including 600 cartons of cigarettes worth $28,000.
"Everything, they took," he said. "Nothing was left over. All the cigarettes, phone cards - everything they could sell was gone."
The shopkeeper said the crooks got into his store by breaking an "access point" into the basement while the shop was closed between 1 and 5 a.m. yesterday.
Besides the cigarettes, the thieves took also cash and merchandise.
"What are you going to do?" he said in resignation over his loss.
The other heist, which police believe was unrelated to the Flushing theft, was the brazen, broad-daylight robbery of A&T Tobacco Sales on Graham Street in Greenpoint, Brooklyn.
The manager told cops he was outside at 2:15 p.m. when two men approached him from behind, stuck a hard object in his back and imprisoned him in his store's bathroom. While he was locked in the toilet, the thieves took $30,000 in cigarettes and fled.
Police are still investigating the two thefts of cigarettes, and have announced no suspects. Thieves often steal cigarettes so they can be resold tax-free on the black market.
The most recent butt heist was earlier this year, when thieves stole $300,000 worth of untaxed, out-of-state cigarettes from the back of a truck that had been left unattended on Webster Avenue in The Bronx.
The cops arrested the thieves after getting a tip the
suspects set up a makeshift cigarette market outside a Bronx warehouse
and were selling the illicit butts for $15 a carton - a deep discount.
Read Their Lips: No Taxes. (Period.)
July 8, 2002
MASTIC, N.Y. — Call it tax avoidance — and call it completely legal.
In this case, call it what Don Kemler does once a week,
like clockwork. Every Tuesday, Mr. Kemler, 48, navigates the winding roads
of this Suffolk County community, sliding his electric blue pickup truck
into a parking space facing two wooden carvings of American Indian men.
He climbs the stairs to the Peace Pipe Smoke Shop, plunks down his $21.25
and leaves with his prize: one carton — 10 packs — of USA Gold
"It's a filthy habit," Mr. Kemler, a lumber salesman from Shirley, said one evening in June, referring to his 30 years of smoking. "But that doesn't mean I'm willing to pay those crazy taxes."
Mr. Kemler is one of many New Yorkers (there is no official count) who visit the tiny Unkechaug Indian Nation to buy tax-free cigarettes. Unwilling to pay those taxes — $1.50 a pack to the state, and now an additional $1.50 a pack in city taxes for New York City smokers — these New Yorkers buy off-brand cigarettes for just over $2 a pack, as opposed to nearly $7 a pack for city smokers. (Savings are similar for premium brands, which sell for less than $3.50 a pack on reservations.)
Mr. Kemler frequents the Peace Pipe, one of four smoke
shops on the five-square-block Poospatuck Reservation, population 220,
about 70 miles east of Times Square. The Unkechaugs are one of many Indian
nations, including the Seneca Nation in upstate New York and the Shinnecock
Nation in Southampton, that take advantage of their right as sovereign
nations to buy and sell cigarettes without paying or charging the hefty
taxes from the state and the city.
They fought hard for this right, which they say has moved
their nations from poverty to relative wealth, and have been in and out
of court for years over the issue. One main opponent is the New York Association
of Convenience Stores, whose members make a lot of money on cigarette sales.
Last December, the United States Supreme Court refused to hear a challenge
to a lower court decision granting Indian sovereignty in this
matter, seemingly exhausting the association's attempts to force the state to collect the tax from Indian nations. The association is now trying to get federal or state legislation passed to ban what it terms the state's "selective enforcement policy," said James Calvin, the president of the association.
So for now the nations sell legally from their shops, over the phone and via the Internet. Their advertisements, heavily peppered with exclamation points, read, "Stop paying those high retail prices and start saving with Indiansmokesonline!" and "Make Senecasmokes your choice for discount cigarettes, you'll be glad you did!"
Shoppers who visit the store tend to buy two to five cartons at a time, shop owners say, while those who buy over the phone or Internet buy from 2 cartons to 50. (There is no legal limit to the number of cartons one customer can buy.)
It's hard to imagine what one person does with 50 cartons — 10,000 cigarettes — but these stores' owners reject any suggestion of bootlegging.
"We get a lot of Manhattanites stopping by on their way out to the Hamptons with a list of orders from friends and co-workers," said Harry Wallace, chief of the Unkechaug Nation and owner of the Poospatuck Smoke Shop and Trading Company, the first shop to open on the reservation, in 1991. "They say, `This carton is for Jane, this carton is for Sharon,' etc. But it's perfectly legal to buy cigarettes for your friends."
There is no law that the cigarettes must be for the buyer's own use; what is illegal is reselling cigarettes bought here for more money and pocketing the difference. Chief Wallace said he assumed those buying for Jane and Sharon made no profit.
But while Chief Wallace said he knew of no bootleggers or smugglers, the phenomenon is not unknown. A spokesman for the New York division of the Bureau of Alcohol, Tobacco and Firearms, Joseph Green, said that he could not comment on open investigations but that such matters are closely monitored. Mr. Green pointed out that the number of tobacco-related investigations conducted by the bureau increased to 71 in the country in 2001 from 6 in 1998.
One of the largest smuggling cases involved the St. Regis Mohawk Nation in Hogansburg, N.Y. In the late 1990's, 16 of the tribe's members pleaded guilty to conspiring to smuggle hundreds of millions of dollars' worth of cigarettes and alcohol into Canada through a reservation. A unit of the RJR Nabisco Holdings Corporation pleaded guilty to federal criminal charges in the case and agreed to pay $15 million in penalties.
Governments say they are raising cigarette taxes not just to increase revenue, but also to discourage smoking. Tobacco companies argue that higher taxes encourage smuggling.
On a June day, customers streamed into Chief Wallace's
shop, a small pine-paneled store with walls of cigarettes and cases displaying
Indian-made jewelry and moccasins. Cars filled the small parking area and
newcomers had to park by the bushes or down the road. Yet exactly how thriving
these businesses are is unclear, because the shop owners — who seem to
feel vilified by just about everyone except their loyal
customers — are unwilling to say.
When asked how many cartons of cigarettes he sells per month, Chief Wallace, a stocky man wearing two braids, denim shorts and flip-flops, responded, "It's none of your business."
A visit to the other smoke shops on the Unkechaug reservation yielded similar results.
So one could explore the economics this way: A reporter watched seven cartons of cigarettes being sold inside Chief Wallace's shop in five minutes one day in June. Erring on the side of caution, then, one could assume 50 cartons are sold an hour. The shop is open 13.5 hours a day every day, which translates to 675 cartons a day, 4,725 cartons per week, or 18,900 per month. (And that does not include phone and Internet orders.) At an average price of $27.50 per carton, Chief Wallace would take in about $520,000.
His profit would be that sum, minus his overhead and what he paid for the cigarettes. Those two costs are another mystery, as Chief Wallace, as well as the cigarette manufacturers and distributors, would not say what he pays for them.
Looked at another way, at $15 in tax per carton, assuming those hypothetical calculations are not too far off, the state is losing about $283,500 a month in revenue from Chief Wallace's shop alone (again, not counting Internet and phone orders). Chief Wallace said there were 85 Indian-owned tobacco outlets in the state at his last count, in 1998. So the hypothetical statewide total: a $24-million-a-month loss to the government. And New York City is also losing $1.50 in tax per pack.
Still, the state seems to have no intention of changing course. And Chief Wallace and his fellow shop owners feel that their right to sell tax-free cigarettes (and gasoline) is nothing short of the lawful exercise of their sovereignty.
"Before we had tobacco shops, we had a welfare economy — and the state was paying for that," Chief Wallace said as he lighted a Marlboro Red. "We couldn't focus on our political, social and educational rights because we were focused on day-to-day survival. Now we're not. Now we are empowered."
Anyway, said the shop owners, they are doing the community a favor.
"We sell to a lot of fixed-income people; you know, senior citizens and veterans on Social Security," said Mike General, manager of JR's Smokeshop II in the Seneca Nation. "They're looking to save money wherever they can, and you can't beat our prices."
As to the morality of making carcinogens available at
low cost to the masses, whether they are people on fixed incomes or travelers
en route to the Hamptons, Chief Wallace shrugged and lighted another cigarette.
"If they're so bad, make them illegal," he said. "In the meantime, leave
Online cigarette sales light up
Smokers use browsers to circumvent increased taxes
CBS Market Watch
July 29, 2002
As state and local taxes on their cartons and hard packs waft ever higher, smokers who would rather fight than quit are trying to stave off nicotine fits without breaking the bank.
Politicians in 17 states have raised tobacco levies this year, but nowhere is the challenge of finding reasonably priced cigarettes more difficult than in New York City, which on July 1 raised its cut of the action to heretofore unheard of levels. See full story.
The results may please public-health advocates and money-conscious state and local legislators as smokers pay more for their favorite brands. In a win-win situation, the new taxes will induce people to kick the habit while filling state coffers at the same time.
Turns out that circumventing the increased duties -- and the goals of those who support them -- can be as easy as firing up a browser or picking up the phone.
Online tobacco sales have been around for as long as e-commerce itself, but there has been an explosion in the number of cigarette-selling Web sites in recent months. With prices sometimes less than half typical retail, these companies operate largely in low-tax states or from the safe harbor of Indian reservations.
The federal government currently gets $3.90 per carton, a sum collected from the manufacturers. Smokers in states such as Virginia and Kentucky, with extra tariffs of 25 cents and 30 cents, respectively, are unlikely to bother with mail order. But in New Jersey ($15), Washington ($14.25), Connecticut ($11.10) and Illinois ($9.80), buying on the Web is looking better and better.
In New York City, it's a no-brainer. The whopping $15 per carton increase -- on top of a state tax of $15 -- means that a pack of Marlboros costs about $7. A moderate smoker is now looking at spending 50 bucks a week, or $2,600 per year, to keep the lungs full. Some folks may give up the cancer-sticks; others find alternative merchants.
And some of the biggest of them are, ironically, located within the Empire State -- albeit on the "sovereign territory" of the Seneca Nation -- and they can barely keep up with demand.
Only one of the half-dozen online tobacco sellers contacted by CBS.MarketWatch.com would talk about their business on the record -- or off it, for that matter.
Bob Benzing, a spokesman for CigarettesExpress, said "we did see an increase in our business when the tax went on. We are now seeing a leveling-off, but at a higher-level than before."
One constraint to growth, however, is that "it is difficult to change people's buying habits of one pack at a time."
A woman who answered the phone at another company was less restrained. "Holy cow! You wouldn't believe how much business we got because of that new tax" she said. "Ummm, I better ask the general manager to call you."
Last week, a journalist living in Manhattan ordered cartons of American Spirit cigarettes from three different online retailers: Cigarettespecials.com, Senecasmokes.com and CigarettesExpress.com.
Each charged just over $36, including shipping, which came to barely half the cost at his local store. Two orders arrived right on time; one was slightly delayed.
According to an apologetic e-mail from CigarettesExpress, "normally, we ship all orders on the next business day after the order is placed. However, due to the new $15 [per] carton tax that took effect in New York City last week, our supplier has been overwhelmed with orders, and has run out of stock of several popular brands."
Another recent purchaser is Steve, a 25-year, pack-a-day Brooklynite. Instead of $7 and up, he said he pays between $3.50 and $3.80 per pack from Cigarettewizard.com.
"Why wouldn't you do it? It's a bargain," he said. "Of course, I would save a lot more if I just quit. But I am not going to just because some politician is twisting my arm."
In the meantime, he said, he has had no problems getting the product on time and as promised. His main complaint is "that if I am not on top of it, I may have to go two or three days buying locally."
More task than force
In theory, he and the thousands of other New Yorkers who have turned to mail order for their tobacco needs could end up on the hook for local taxes -- if the city can figure out how to make them pony up.
The law was one of Mayor Michael Bloomberg's pet projects; he signed it on June 30 with much fanfare, claiming that it will both save lives and generate $111 million in additional revenues next year.
Officials at the New York City Department of Finance could not be reached for comment, but a spokesman for the mayor said such scofflaws may soon be the targets of a special "task force."
Trouble is, it could be more task than force. While some retailers are supposed to turn over customer lists to state and local regulators, few do -- and many brag that they will not reveal them to anyone.
It is not an idle boast.
While a change in federal law, or a successful legal challenge, could compel compliance, tobacco shops located on Indian ground fall well outside of state jurisdiction, and the Senecas have a proud tradition of beating New York in court.
Benzing confirmed that while no one has tried to get his company's customer lists, it has no intention of ever giving them out.
Bill Williams is the founder of Smokinglobby.com, an anti-tax and smokers' rights site where the relative merits of online tobacco retailers are often discussed. He also lives in New York and has been buying his cigarettes online for about two years. Prices have held steady over that time, and he has never had any trouble getting his deliveries.
"Why in the world would I pay so much state tax when I can get them somewhere else?" he said.
Williams said he believes that at least some new online buyers are not only being thrifty but also engaging in a "a form of protest against being singled out by New York City for extra taxation."
And he worries not at all about a knock on the door, confident that "if there is a crackdown, it will have to be done at the federal level."
The other players in this unfolding drama, of course, are the manufacturers. Big Tobacco has taken quite a beating in the press and in courts over the last few years and takes a cautious stance on this subject.
A spokesman for Philip Morris (MO: news, chart, profile) said it discourages online sales of its products, mostly because of age-verification questions. The company has asked several online retailers to remove its products for that reason, he said, and some, though by no means all, have done it.
At No.2 R.J. Reynolds (RJR: news, chart, profile) , a spokesman said the company does not have set policy with its distributors about online sales but "we will not support them" with advertising, promotions, artwork or any of the other traditional retail back-up.
However, the boom "is not something that comes as a surprise.
We pointed out at the time that with huge tax increases...chances are you
are going to see more online sales and cross-border sales."
Online Cigarette Sales Hurt States' Tax Revenue, Says Report
August 12, 2002
States are losing millions in taxes as more people buy cigarettes from Internet vendors who routinely ignore a federal law requiring them to report sales to local regulators, according to a new report.
The trend could undercut efforts by cash-strapped states to raise revenue by increasing cigarette taxes.
New Jersey and New York state both have a tax of $1.50 a pack, the nation's highest. Washington state is third, at $1.425. In Massachusetts, lawmakers recently approved a 75-cent increase, a move officials hope will bring in an extra $190 million annually.
Federal law requires Internet cigarette sellers to provide state revenue officials with names and addresses of their customers. The officials can then pursue the buyers to make sure they pay local sales taxes.
But Internet cigarette vendors are ignoring the law, according to the report, to be released Tuesday by the General Accounting Office. Of 147 Web sites identified as belonging to Internet cigarette vendors in the U.S., none posted information saying they complied with the law -- and 78% indicated they don't comply, according to the report.
Calls to several Internet cigarette vendors advertising "tax free cigarettes" weren't returned Monday. One Web site promised buyers: "We do not report to tax authorities in ANY state. 100% confidential."
By 2005, Internet tobacco sales in the U.S. could exceed $5 billion and states could lose about $1.4 billion in revenue, according to the report. California alone has estimated a tax loss of about $13 million from May 1999 through September 2001 because of the failure of online vendors to comply with the law.
The savings for buyers online can be significant.
The lowest amount that can be legally charged for a carton of cigarettes in Massachusetts is $54.90. At least one Web site advertised a carton of Marlboro cigarettes for as little as $26.99, and free delivery for those who bought in bulk.
The GAO report recommends shifting primary enforcement of the law from the FBI to the Bureau of Alcohol, Tobacco and Firearms, in part because of the FBI's heightened focus on terrorism.
Rep. Martin Meehan (D., Mass.) requested the report
and distributed it Monday to media outlets. He said the study reveals a
burgeoning market of online cigarette sales and a lack of oversight that
lets children illegally buy cigarettes online.
Tax Hike Puts Store Profits Up In Smoke
NY Daily News
September 17, 2002
It's not even three months since the city jacked its cigarette tax up to $1.50 a pack, but many retail stores along the Nassau border are feeling a big pinch.
Instead of buying their butts in eastern Queens, smokers are slipping into nearby Nassau County, where cigarettes cost $4.50 to $5.50 a pack -- substantially less than in the city.
"When people ask for a pack and I say $7.35, they say 'never mind' and walk out," said Charles Chen, owner of Douglaston Minute Market and Gifts. "It's been terrible. We've lost about 75% of our customers, and I'm barely making the $2,500 monthly rent payments."
The city expects the tax increase -- from 8 cents a pack -- to raise $111 million this fiscal year, and Mayor Bloomberg said he hoped the hike also would deter New Yorkers from smoking.
"No one is stupid enough to pay the high price," Chen said. "I am a couple of minutes from Long Island, so people are getting their cigarettes there."
Elvis Rodriguez, a salesman at the 21 Convenience Store in Laurelton, said his customers are either going to adjoining Valley Stream in Nassau County or purchasing black market smokes peddled illegally on the streets not far from his store.
"They are selling cigarettes for $5 a pack right on Merrick Blvd.," Rodriguez said. "It's that bad."
Law enforcement officials in Virginia provided some details yesterday on where the illegal smokes may come from. They reported that since the beginning of August, thousands of dollars of cigarettes have been stolen in a rash of smash-and-grab thefts at stores there. Authorities believe the stolen smokes are being sold on the black market here and in other states with high cigarette taxes.
Within the past two weeks, burglars in Virginia have snatched nearly $30,000 worth of cigarettes.
"We don't know i f all these burglaries are related, but we do know there's some black market activity going on here," said Prince William County police spokesman Dennis Mangan.
One of Rodriguez's customers, John Simpson of Laurelton, said he quit smoking because the price was too high.
"Why not make it $10?" Simpson asked. "It's ridiculous."
At Bambi Cards and Gifts in Rosedale, some customers are forgoing the cigarettes completely. "Long Island is just a one-minute drive, so when they hear the price they just ask for the free book of matches and leave," said owner Gun Se Lee.
Meanwhile, at Delight Traders on 259th St. and Hillside Ave., owner Gary Virdi called the situation a losing battle. His weekly revenue has declined by $1,000.
"I am hurting, especially since I am on the border of Nassau," said Virdi, who has gone from selling nine cartons a day to just one. "If the price was the same over there it would have been a little bit better, but now people have a choice and go the few extra blocks to save money. I am nervous because I won't be able to survive like this."
At the Amoco gas station on Northern Blvd. in Great Neck, just across the city line in Nassau, it's a different story. Business is booming.
"We have gotten 5% more customers," said the station owner, who asked that her name not be used. "I don't feel bad about the stores across the street [Northern Blvd. -- in Queens] from me. It's a business."
Ellen Oh owns the Northern Deli in Little NEck across from the Amoco station -- one of the businesses that lost a number of customers.
"It's unfair," said Oh, whose cigarette sales had accounted for 20% of her business. "The day the tax went up... I saw the business drop."
Glancing at a shelf full of cigarettes, she noted:
"Why shouldn't [sic] it only be a city tax? The mayor is picking
on the small-business owner. We are the the little people.
They should go for the bigger corporate types."
$200M lost to smokes smugglers
Yearly city, state tax shortfall from gang & Internet sales
NY Daily News
September 23, 2002
Freelance smugglers, organized crime and Internet sources are flooding New York's neighborhoods with cheap cigarettes that would bring the city and state upward of $200 million a year in taxes on the legitimate market.
With premium brands such as Marlboro going for $7.75 a pack in many stores throughout the five boroughs and cartons going for $70 and more, thousands of smokers have chosen to buy either smuggled smokes - or untaxed cigarettes from more than 144 Internet sites, which are legal but unregulated.
The boom in underground cigarettes was touched off by
the July 2 increase in city taxes to $1.50 per pack from 8 cents apack
and a bump in
state taxes to the same $1.50 per pack from $1.11, according to government officials and tobacco wholesalers.
In July and August, 24.5 million fewer packs of legitimate cigarettes were sold in retail outlets throughout the city than in July and August last year, according to the city Finance Department. That's a drop of 41%.
Smuggling to the city from lower-tax states such as Virginia (2.5 cents a pack total) generates tremendous profits for ringleaders - up to $25,000 for a day's work involving a van loaded with 2,500 cartons, said Edgar Domenech, special agent in charge for the federal Bureau of Alcohol, Tobacco and Firearms' regional field division.
Untaxed cigarettes or cigarette packs with phony tax stamps
are available in many neighborhood stores or on the street, where hawkers
routinely peddle $50 cartons.
"When it comes to smuggling and counterfeit stamps, traditional organized crime is involved, terrorist groups are involved and street gangs are involved," said John Dugan, the ATF's area supervisor for industry operations.
"Now, the profit margin is tremendous," he said.
3 stores in 4 blocks
One morning last week, three stores in a four-block area in Bedford-Stuyvesant, Brooklyn, were busted by agents of the Finance Department's tax enforcement division for selling untaxed cigarettes.
The agents bought the cigarettes at Tony's Millennium grocery store, 269 Schenectady Ave.; the Peking restaurant, 249 Schenectady Ave., and Freddie's deli and grocery, four blocks away on St. Johns Place.
"I don't know where they're from, I don't [know] anything
about it," said Antonio Blas, a clerk at Tony's Millennium. Hewas answering
investigators' questions as they searched his store.
Blas said that sales of cigarettes of any kind were "way down" because of street hawkers.
"They're right outside the store, up the block, selling
out of their trunks, saying, 'Hey, man, $5, $5 a pack,' so people are not
coming in here to
buy," he said.
'I work here, not owner'
At Freddie's deli, Faiz Saleh Al-Qah, the clerk behind
the counter, shook his head and in broken English told investigators he
had no idea what
they were talking about when they confronted him with the untaxed packs. "I work here, not owner," Al-Qah said.
And at the Peking restaurant, investigators arrested the owner after finding 10 cartons of untaxed cigarettes hidden in barrels and under counters.
City Finance Commissioner Martha Stark said her investigators
are spot-checking stores on a continuing basis. "We are enforcing the
regulations," she said.
City officials argued the tax increase was necessary to help close the $5 billion budget gap and to deter smoking.
"This tax increase is more about saving lives - mostly about saving young lives - than it is about revenues, for if we collect $100 million a year in cigarette tax revenues, that really is not significant considering that our estimate for total tax collections is $14 billion for the year," Stark said.
Even though fewer packs of cigarettes are being sold, she said, revenues have increased because of the tax hike. This July, cigarette revenues for the city were $12.3 million, Stark said, while in July 2001, the revenues were $2.3 million.
Wholesalers said that figure doesn't take into account
the lost revenues to the city and state from other taxes, including $15
a carton in state
taxes, and an additional $5.60 in taxes shared by the state and city.
"This new tax is negative revenue producing. The city and state will have a net loss of $250million a year," said Leonard Schwartz, president of Globe Wholesale Tobacco Co. and chairman of the Tobacco Association of the State of New York.
"Thirty-five million cartons were sold in the city last [fiscal] year; they're going to lose 18 million cartons," he said, predicting that legitimate cigarette sales would drop further in the coming months.
Whatever their differences over tax revenue collections, Schwartz, Stark and law enforcement agencies all agree on one point: The city is awash in black market cigarettes.
But the Finance Department has only 16 investigators to patrol 13,000 retail stores licensed to sell cigarettes in the city, and those investigators also enforce other tax regulations.
Additionally, enforcement of city, state and federal laws
on cigarettes is spotty, at best, in part because the ATF and the FBI,
which is also
responsible for tobacco regulations, give the issue a low priority.
Locally, few black market cigarette and phony tax stamp cases have been prosecuted. So the smugglers have nearly free rein, inspired as well by maximum federal sentences of six months in jail and/or a $1,000 fine. They have to be caught with a minimum of 300 cartons in order to be prosecuted.
As for the Internet sales, the Web is entirely unregulated.
A recent U.S. General Accounting Office report said untaxed Internet sales of cigarettes will reach $5 billion nationwide by 2005, and states "will lose about $1.4 billion from those sales."
Nearly all the 47 New York State Internet sales sites are run by Native Americans whose operations are not taxed under federal law, and who pass those savings on to consumers. Premium brands are available at $28 to $33 a carton.
In theory, the buyer is supposed to pay city and state sales taxes on purchases of more than two cartons.
"But nobody is enforcing that; it's impossible to enforce, although we'd like to," Stark said.
A law banning untaxed Internet cigarette sales in New York was declared unconstitutional after a challenge by Brown & Williamson Tobacco and Santa Fe Natural Tobacco Co., a Native American brand. A Manhattan federal judge ruled that only the federal government has the right to regulate interstate commerce.
Tax hike on smokes is burning bodegas
NY Daily News
September 25, 2002
By Jose Fernandez, president of the Bodega Owners Association
Nearly three months have passed since the city and state collaborated to pass the largest single tax increase in New York City's history, raising the tax on cigarettes to $1.50 a pack from 8 cents.
When this hike of almost 1,900% was proposed, grocery store owners warned that it would have a devastating impact on neighborhood stores that depend on cigarette sales for up to 25% of their gross revenues. We also predicted a flood of bootlegging and a dramatic seepage of sales to nearby states with lower taxes. As a Daily News investigative report Monday vividly highlighted, the impact may be even worse than predicted.
Neighborhood grocery stores have suffered a decline of close to 50% in cigarette revenue. In low-income areas where our bodegas have historically flourished, there is blatant hawking of illegal smokes - often right in front of our stores. Sales to minors, which were declining as a result of vigorous law enforcement, have started to increase as the hawkers sell to anyone with ready cash, no questions asked.
Law enforcement budgets, straining under the post-9/11 crunch, will have to rise to meet the smuggling threat and intervene in the inevitable turf wars that until now have been associated almost exclusively with the drug trade.
And, as The News also reported, untaxed Internet sales have skyrocketed. The projected loss for the city and state is $250 million a year, according to the chairman of the Tobacco Association of the State of New York.
The prospect for neighborhood economies is grim. City bodegas and greengrocers account for hundreds of millions of dollars in annual sales. This business creates the lively foot traffic that helps make our communities safer while providing jobs for tens of thousands of entry-level workers.
Meanwhile, merchants in Nassau and Westchester counties and New Jersey have begun to reap the benefits of this misguided policy as customers cross borders in search of reasonable prices. This sales hemorrhaging will lead to bankruptcies, store closings and serious job losses for the city's immigrant work force.
Before the cigarette tax hike passed, the Bodega Owners Association offered a number of alternatives to generate revenues, including a modification of the city's system for collecting fines. No one listened.
As tax revenues drop, workers are laid off and stores
fail, will our elected officials admit that the use of the cigarette tax
to balance the city's budget was a classic example of political smoke and
Cops Flick Butt-Leggers
September 28, 2002
Cops seized more than 1,200 cartons of counterfeit cigarettes from a Queens home where authorities said a mom, pop and son ran a $5 million-a-year bootleg operation, DA Richard Brown said yesterday.
The family imported cheaply made smokes packaged as Marlboros and other name-brand smokes, stored them in their three-story apartment house, and peddled them to retail stores on Canal Street in Chinatown, authorities said.
Zhi-Cheng Chen, 52, his wife, Hui-Ling Chen, 48, and their son, Lei Lei Chen, 22, allegedly earned $100,000 a week from their sales, authorities said.
All three were arrested Wednesday and pleaded not guilty to charges of cnspiracy, trademark counterfeiting and cigarette tax offenses. They were released on $5,000 bail.
Brown said a torrent of untaxed cigarettes, including fakes, has been pouring into the city since the state raised the cigarette tax, making the price of legal smokes $7.50 a pack.
The fakes -- which smoke hotter and taste drier than legal
butts, and are often laced with sawdust -- sell for about $50 a
carton, while name brands sell for $70-$75 a carton, Brown said.
Roll-Your-Owns Cut Taxes
October 14, 2002
Dave Eget doesn't do it because it's supposed to be cool. And he certainly doesn't do it because it looks as if he's using marijuana, since he paid for that particular aspect of his habit last spring by having his car searched by the police.
No, Mr. Eget rolls his own cigarettes because it costs a fraction of what he used to pay for ready-mades, and he is hardly alone. As state and local governments pile new taxes on maunfactured cigarettes in efforts to discourage smoking and to increase revenue, a practice that conjures up images of Depression-era hobos and old cowboy Westerns has become increasingly common around the country.
"It's not something I particularly wanted to do," said Mr. Eget, 18, a freshman business major at the Rutgers University campus here. "I'm doing it mainly because of the tax increase."
In New Jersey, the taxes rose in June to $1.50 per pack of cigarettes, the same as in New York City. As a result, the price of a pack rose to as much as $6.
While the number of smokers of roll-your-own cigarettes is still very small compared with the 48 million over 18 who buy packaged cigarettes in the country, their numbers are growing steeply, according to the tobacconists who sell paraphernalia for the home roller.
That is a concern to health professionals, particularly as some of these smokers talk of the process of rolling and enjoying their own cigarettes in romantic terms, like someone sipping a fine wine. Scott J. Leischow, chief of the Tobacco Control Research Branch at the National Cancer Institute, warned that smokers not delude themselves into forgetting what they are doing. "Use of roll-your-own cigarettes should not lead a smoker to believe that they will have a decreased health risk," he said. "They continue to inhale tobacco into their lungs, and the evidence is overwhelming that doing so is a cause of serious disease."
The roll-your-own industry credits its growth and sees its future in the United States in inexpensive hand-operated machines that produce a cigarette almost indistinguishable from one made at a factory, a far cry from the sloppy look of a hand-rolled cigarette familiar to marijuana users. And best of all, each costs a fraction of the price of one in a pack. In addition to the machines, customers use bulk tobacco (often exotic, imported brands and flavors), rolling papers and, most important, ready-made cigarette tubes with filters.
Tobacconist magazine, a trade publication, reported last year that roll-your-own was the fastest-growing segment of a business that includes cigars, pipes and pipe tobacco and amounts to 2 to 4 percent of the country's 48 million cigarette smokers, or roughly 1.5 million people.
One clue: CTC Canada, one of three manufacturers of cigarette tubes that export to the United States, estimates that the American smoker, the company's fastest-growing market, will buy nearly 100,000 cases, each containing 10,000 tubes, this year. That is 15 to 20 percent higher than last year, said Garry Garbarino, the president of CTC.
Mr. Garbarino added that sales are increasing even faster for the Supermatic, his company's $50 desktop cigarette maker, which turns out a filtered cigarette that is all but indistinguishable from a mass-produced one. "In the old days a thousand machines a year was a good year, but now we're shipping about 20,000 a year," Mr. Garbarino said. "Not everybody wants to sit down and make cigarettes," he went on. "Some do it for the quality, but let's not kid ourselves, pricing has got to be the issue here."
Ginger Greco, a retired Monmouth County government employee from Belle Meade, went into Jorge Armentero's shop in Princeton, A Little Taste of Cuba, to buy ready-made tubes just the other day. "I'm not going to spend 4, 5, 6 dollars for a pack of cigarettes anymore," she said. "And I've been smoking since 1958, so I'm not going to stop now."
Mr. Armentero said he now carries a dozen kinds of cigarette tobacco in pouches to keep up with demand. "We've always had a few pseudo-bohemians and nonconformists who rolled their own," he said. "Now it's a much more everyday kind of person."
Dr. Leischow said that the trend bears monitoring, and worrying about. "This is not a form of tobacco use that is being actively tracked," Dr. Leischow said, "but it is certainly something that we should watch in the future, because we have seen an increase in roll-your-own smoking in other countries, like Australia, as prices have gone up."
For Mr. Eget, the price works like this:
"For a pack of 20 cigarettes I pay about $4, or 20 cents each," he said. "I can buy a pouch of rolling tobacco for $1.05 that will give me about 35 cigarettes, so the cost to me is closer to 2 or 3 cents apiece."
He concedes that he got stares when he started rolling his own cigarettes about a year ago and believes the cigarette papers on the seat of his car in May of this year caught the attention of a trooper after he was pulled over for speeding.
"He asked me about them, and I said I rolled my own cigarettes," Mr. Eget said with a laugh. "He said, `Yeah, well, I'm still going to have to search your car.' And I said, `No problem.' "
Now he makes a pack's worth a day ahead, and carries them in a cigarette tin.
The roll-your-own industry is aware of the bad image of tobacco use, and its adherents argue that they are different from the mass-market tobacco industry. They say that the act of making a cigarette, of choosing a particular brand and tube or filter combination, both curtails their smoking and gives them an experience of connoisseurship, like aficionados of fine wine or cigars.
"No doubt, the initial interest in make-your-own cigarettes was the price — the poor man's cigarette," said Doug Kennedy, publisher of Roll Your Own magazine, an online publication. "But the people who do it get to see that the quality is so much greater and the feeling of control over your smoking is so much more important than the marketing-driven obsession with smoking that Big Tobacco puts out."
Dr. Joseph R. DiFranza of the University of Massachusetts Medical School, who led the attack on the Joe Camel character for being aimed at children, said his research suggested that adolescents, at least, would not be drawn to home-rolled. "Kids are so image conscious they don't want to be seen smoking anything inexpensive," Dr. DiFranza said.
For his part, Mr. Eget says he is not sure if he would return to store-bought cigarettes if the price suddenly dropped. He would like the convenience, he said, but acknowledged Mr. Kennedy's point about being in control of the cigarette in his hand.
"I kind of like doing it this way now," he said on the
Rutgers campus here. "I can customize it, I can add more or less tobacco,
and I've gotten used to it. It becomes normal."
Web Burns States Expecting Cigarette Taxes
States Feel Lost Tax Revenue Pinch as Smokers Turn to the Internet for Cigarette Deals
October 15, 2002
If you buy cigarettes on the Net, you may soon have to ante up the state taxes you've been able to avoid until now.
That's because of a startling conclusion made in an investigation Congress asked for earlier this year.
The federal Jenkins Act dictates that Web cigarette vendors must provide the names of their customers so states can collect taxes from them. The General Accounting Office looked at 147 Web sites that sell cigarettes and came to a startling conclusion.
"Out of 147 vendors that we identified that had Internet sites, we found that, based upon information posted on those sites, none of the 147 complied," said Paul Jones, the GAO investigator who wrote the report for Congress.
"We found some sites that said explicitly, 'We do not report sales,' and they also said, 'tax-free cigarettes.' Now, there were a few sites that told the buyer that you should report to your tax-collecting agencies, but the vendors themselves did not report sales," Jones said.
Lack of Enforcement Leads to Losses
Enforcement is also a major problem, according to Jones.
"Basically we found that the federal agencies who are responsible for enforcing the law have done very little to enforce the law," he said.
"The primary-responsible agency is the FBI under the Department of Justice, and we found that [the FBI] had done no work in terms of investigating cases of violations of the Jenkins Act. We did find that the Bureau of Alcohol, Tobacco, and Firearms [ATF] had done some investigations of Jenkins violations as they related to the smuggling of cigarettes."
The lack of enforcement has great cost to revenue-starved state governments, which have been raising tobacco taxes to help fund state programs.
"We're talking potentially as much as $1.5 billion in revenue losses to states right now, so I would classify this more as something that is growing, and growing significantly," said Frank Shafroth, the director of state-federal relations for the National Governors Association.
"It's significantly bigger than it was five years ago. Clearly, you have two things going on. You have the Internet, which makes it a lot easier to sell into a state as opposed to a vendor using an 800 number or some other means of trucking it in. So I think that the Internet has made it a lot easier to violate federal law," Shafroth said.
"And the success of companies doing it and noting that it's not being enforced by the federal government increases their desire to do it."
Smokers advocates believe that ever-increasing state taxes are forcing smokers to the Web.
"Smokers are just another consumer group," said Karyn Kimberling of Forces International, a smokers' rights group active in the Washington, D.C., area.
"They are always going to look for the best price. And if the states like California, New York, and Maryland overtax a product — any product — and in this case, it happens to be cigarettes, then people that live in that state are going to look for the very best prices," she added.
"And if that means they have to go across the state line to buy them at a cheaper rate or find someone on the Internet who gives them a reasonable rate for a product, a legal product, they will do so."
Congress is considering legislation that would make it a felony for any violation of the law that requires Net vendors to provide names of customers. The hope is that the change would make prosecution more likely.
Another change that Congress is considering is to
make the ATF instead of the FBI the primary enforcement agency.
October 16, 2002
Cigarette sales in the city plummeted last month, with just one-third as many packs sold as before the city added a hefty $1.50 tax, The Post has learned.
In September, 10.5 million cigarette packs crossed store counters - compared to 29.2 million in June, according to sources basing estimates on tax-stamp data.
That's a 64 percent decrease.
On July 1, the city hiked its tax on cigarettes from 8 cents to $1.50 a pack, sending many smokers scrambling for cheaper sources of nicotine on the Internet and from tax-free Indian reservations.
The higher cigarette tax is part of a two-pronged drive
against smokers by Bloomberg.
Stolen Cig Ring Nailed
October 24, 2002
Cops say a Bronx cigarette warehouse was like the Golden
Goose to four thieves who burglarized it four times since last
summer before laying an egg when they were arrested with $65,000 in stolen smokes.
The quartet allegedly stole an estimated $150,000 in cigarettes from the S&A Cigarette Co., cops said.
Sources said they believe the contraband - about half of which had the coveted NYS tax stamps on them - was being offered for sale at wholesale prices.
On Tuesday, Detective Jose Ramirez of the 40th Precinct got information that a cache of the stolen cigarettes was being stored in two vans at East 198th Street and Webster Avenue.
Police Officers Carlos Lopez, Chris Gonzalez and George
Vanwellenger descended upon the location and arrested four men.
Tobacco group files lawsuit to snuff levies
NY Daily News
November 12, 2002
Branding the recent cigarette tax hikes an unconstitutional sham that is failing to produce promised additional revenues, tobacco wholesalers will file a lawsuit today to eliminate the increase.
The suit, to be filed in Manhattan Supreme Court by the state Association of Tobacco and Candy Wholesalers, said the state and city will lose more than $200 million in taxes this fiscal year. The reason, court papers say, is that smokers are buying on the black market or on the Internet to evade the increases.
"The increases are unconstitutional because it's an attempt by Mayor Bloomberg to selectively rule an industry for a social agenda, to eliminate smoking," said attorney Ronald Warfield, representing the tobacco group.
The suit also charges that the increase "purposefully and unfairly disadvantages all legitimate agents licensed to sell cigarettes" in the city in favor of those outside the city, including Internet dealers.
The wholesalers have been taking a beating with decreased sales of packs with legitimate tax stamps, according to Leonard Schwartz, chairman of the tobacco group.
Spokesmen for Bloomberg and city Controller William Thompson, both named as defendants in the suit, could not be reached for comment yesterday, a national holiday.
The increases, which went into effect July 2, are from 8 cents to $3 a pack in city taxes and from $1.11 to $1.50 a pack in state taxes.
Legitimate New York tax-stamped cigarette sales in the city have dropped by half since the tax hikes went into effect, according to both Schwartz and the city Department of Finance.
In previous arguments over the numbers, city officials
stated that even with fewer sales, the tax increase will produce $115 million
for the city this fiscal year, compared with $28 million last year.
Pricier cigarettes a windfall for crooks
Robberies are rising after state tax hikes
November 25, 2002
For the enterprising thief, cigarettes are as good as cash.
On the heels of the summer's major cigarette-tax hikes in New Jersey and New York City, law enforcement officials on both sides of the Hudson River are coping with a rash of smash-and-grab burglaries and robberies of stores that sell cigarettes.
In New Jersey, which in July boosted the cigarette tax from 80 cents a pack to $1.50, criminals have used everything from blow torches to guns to steal cartons of cigarettes. In New York City, where $3 was added to the cost of a pack of smokes, police formed a special unit to combat illegal trafficking.
Joseph Green, a spokesman for the federal Bureau of Alcohol, Tobacco and Firearms, who said he's barred from speculating on whether the tax hikes have anything to do with the increase in thefts, said it's clear that a black market is thriving in the two states with the nation's highest cigarette tax.
"You can look at what New York and New Jersey are going through," Green said. "That's what's really driving the (black) market."
With a pack of cigarettes costing $5 or more in New Jersey and $7 in New York City, law enforcement and retail industry officials say the incentive to steal cigarettes is greater than ever.
"Some of the most valuable things in stores are cigarettes," said Jeff Leonard, spokesman for the National Association of Convenience Stores. "The average convenience store sells $350,000 worth of cigarettes a year. That's nearly $1,000 worth of cigarettes a day."
Leonard said his organization is aware of an increase in cigarette thefts, but does not track them.
Although organized-crime rings have been suspected in large-scale heists that have involved the hijacking of trucks, most of the criminals that have targeted stores in New Jersey are small-time operators.
In August, thieves wielding a blow torch cut through the dead-bolt lock of a South Brunswick Sunoco gas station and grabbed 909 cigarette packs from the display case. They took no money.
During a robbery of a Little Ferry gas station in July, a gun-wielding robber demanded 60 cartons of cigarettes -- not cash.
At a heist at a CVS store in Old Bridge last month, burglars hauled away two trash bags filled with cigarettes.
Old Bridge Police Capt. Scott Dyson said thieves see an easy payoff. "Within a minute after they break in, they're gone," Dyson said. "They're probably selling them and make $25 or $35 a carton."
The market for stolen cigarettes is hot in both New York and New Jersey.
In New Jersey, officials say, some stolen cigarettes are sold to the operators of small inner-city grocery stores. In New York, many of the cigarettes are sold at after-hours bars. And some are sold openly on the streets, said Green, the ATF spokesman.
While the ATF only handles cases involving the theft of more than 300 cartons of cigarettes, the agency has been busy, Green said.
"All I can say is that there has been a dramatic increase from three or four years ago," he said.
Nationally, the ATF handled six tobacco theft cases in 1998. The number has jumped steadily each year, to 79 last year. "I believe there are over 100 active investigations that are open as we speak," Green said.
To crack down on the problem, New York City police formed the Cigarette Interdiction Group, which seized more than 1,300 cartons of stolen cigarettes in August, its first month of operation.
In Manville, police started a late-night surveillance program last month to combat a series of smash-and-grab burglaries.
Police Lt. Mark Sniscak said the sting was in response to 14 such burglaries that began in February and increased in frequency after the tax was imposed.
Just a week after the increased surveillance began, a borough man threw a brick through the glass door of the Stop and Go convenience store while Manville officers were stationed nearby. The officers grabbed him before he could climb through the shattered store window.
Sniscak said he wouldn't be surprised if the rise of similar smash-and-grab burglaries in New Jersey was the work of loosely knit rings set up to sell the stolen cigarettes on the black market. "There's no way to trace them and they're easy to sell," he said.
And some store owners have begun taking extra steps to protect their businesses.
At the Quick Out convenience store on St. Georges Avenue in Woodbridge, owner Kalpesh Patel spent $3,000 last month on iron security bars after two burglaries in five days. The haul: $3,000 worth of cigarettes.
"Customers say it looks like a jail. A couple of customers
say it looks like New York City," Patel said. "I have no choice."
DALE McFEATTERS: New York's cigarette tax is a taxing failure
December 27, 2002
(SH) - Despite overwhelming experience to the contrary,
politicians remain bloodied but unbowed in their belief that they can
somehow outwit the laws of economics.
New York City is a case in point.
Last summer, the revenue-short city boosted its tax on a pack of cigarettes from 8 cents to $1.50. The state also boosted its tax to $1.50. The combined tax makes the price of a pack of cigarettes in New York City $7.50, the most expensive in the nation.
The tax was the product of the usual mix of motives: pecuniary and patronizing. Pecuniary because it would bring in lots of money, and patronizing because it implied "Let's get people to quit this filthy habit by making it prohibitively expensive."
The tax is also brutally regressive, penalizing lower income smokers much more harshly than the well-to-do. You can argue that the poor shouldn't be wasting their money on useless, unhealthy vice, but as long as cigarettes are a legal product, that's really none of the government's business.
The result of the tax hike, according to The Wall Street
Journal, is that legitimate sales have fallen steeply, the number of tax
stamps sold by the city is off 50 percent and the city has a thriving black market in contraband cigarettes, easily obtainable down I-95 in the low tobacco-tax states of Virginia and North Carolina.
The untaxed cigarettes are sold on street corners, out of car trunks and under the counter at convenience stores. The price is $4 to $5 a pack, no bargain, but it beats $7.50. And, in accord with the law of unintended consequences, some penny ante drug dealers may have switched to peddling contraband smokes because the penalties are lighter, a maximum of five years for cigarettes to a maximum of life for drugs.
The politicians have thus unerringly honed in on that
economic benchmark where it pays people to cheat. Thus, the way of all
Black Market Sales Growing
December 27, 2002
NEW YORK -- Streetwise entrepreneurs, taking advantage of the nation's highest tobacco taxes, are lurking the streets hawking packs of premium brands for $5.
Cigarette trafficking has exploded in recent months in New York City, The Wall Street Journal reported, attracting veteran and amateur hawkers seeking extra income.
Why the boom? Last summer, the city raised its excise tax on cigarettes to an eye-popping $1.50 a pack, from eight cents. New York State also raised its levy, from $1.11 to $1.50. The combined $3-a-pack wallop makes cigarettes here the costliest in the U.S., about $7.50 a pack. On the street, $4 to $5 a pack is practically irresistible, the newspaper reported.
"I go for shopping areas, wherever there's a large crowd," said a 28-year-old cigarette hawker who identified himself as Ave. "I make a good profit, enough to pay my bills."
With legitimate sales of cigarettes down significantly, business for street peddlers like Ave are good ? and they deprive the financially-ailing of much-needed tax revenue. The number of cigarette-tax stamps sold by the city from August through November was down 50 percent from the same period a year ago, The Journal reported.
The black market has spread across the city. In Brooklyn,
a landlord fearing drug pushers were in the neighborhood called police.
The "pushers" turned out to be cigarette vendors. Bootleggers sell untaxed
cigarettes from car trunks; cab drivers offer them to passengers; and corner
groceries sell them to favored customers. Some street hawkers even approach
commuters outside Grand Central Terminal.
DEADLY WAR FOR BOOTLEG SMOKES
December 10, 2003
Two people have been murdered and two others shot in separate acts of violence tied to a surge in cigarette bootlegging that has rocked the Big Apple in the aftermath of the whopping cigarette tax hike.
The allure of easy profit - as much as $50 per carton - has drawn to the lucrative illegal cigarette trade a variety of criminals, from Russian thugs in Brighton Beach to gangs in Chinatown to suspects with ties to the terror group Hezbollah, police and federal officials say.
And now the rival factions are setting their beefs with guns and knives:
* Sherwin Henry, 23, who was re-selling cigarettes bought in bulk from a Long Island Indian reservation, was fatally shot in the head on the rooftop of an East New York, Brooklyn, apartment building on Nov. 19.
* Cody Knox 19, was chased down through a crowd and stabbed to death in broad daylight near Brooklyn's Fulton Mall in a cigarette-selling turf dispute.
* A 25-year-old Bronx man, whose name was withheld, was shot at 1304 Miriam Ave. in another turf war.
* Desmond Jordan, 34, was shot twice allegedly by William Giddens, 45, last May 17 in front of 24 Humboldt St. in yet another battle.
"You can liken this to narcotics trafficking; there are people who buy in bulk, then break it down and distribute to stores or to street dealers who sell them by the cigarette," said Garry McCarthy, the NYPD's deputy commissioner for operations.
The NYPD created a unit called the Cigarette Indiction Group (CIG) to deal with the "anticipated" upturn in "buttlegging" immediately after the city passed a $1.50-a-pack tax increase in July 2002 - an extraordinary 1,900 percent jump from 8 cents a pack.
Since then, the six-member CIG unit has made 146 arrests, seized six cars, $250,000 in cash and 30,000 cartons (6 million) cigarettes - and their work does not include the more than 1,000 cigarette-related collars made by the city's patrol cops, McCarthy said.
McCarthy said the lucrative trafficking and the comparatively modest sanctions suggested the schemes could continue, as could the bloodshed.
"Any money-making scheme will branch into violence," he said.
TAXES AND TERRORISM
The Washington Times
June 12, 2004
Taking a page from the Mafia's playsheet, terrorist organizations are scoring millions off the cigarette-trafficking racket here in the United States. As The Washington Post reported Tuesday, officials at the federal Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) have opened hundreds of illicit cigarette-trafficking cases with links to Hezbollah, Hamas and al Qaeda, a dramatic increase from the handful of cases ATF was investigating a few years ago. William Billingslea, an ATF senior intelligence analyst, told The Post that cigarette smuggling has begun to rival drug trafficking as the funding of choice for terrorists. Considering that cigarettes are a legal product, this is quite a paradigm shift, all the more regrettable as it is entirely of our making.
The increase is not, as some no doubt will argue, a result of the U.S. war on terror. Quite simply, some crafty terrorists are putting their Econ 101 classes to use, exploiting the price discrepancy that outrageously high cigarette taxes have created. "The money is so lucrative," said Mr. Billingslea.
As it appears that our state and local lawmakers seem intent on ignoring sound economics, allow us to explain why this is. If Virginia has only a 2.5 cents tax per pack, anyone can buy a carton, legally, for $20. If this buyer is of the entrepreneurial sort, he can turn around and sell that carton to a smoker in New York City, where cigarette taxes go as high as $3 per pack and cartons as much as $75, for whatever price will earn him a acceptable profit. Expand this simple economic model, and it's not hard to see why a smuggler can make as much as $2 million off a truckload of cigarettes. Indeed, organized crime has been doing it for decades.
The solution to this black-market scheme goes beyond stricter law enforcement. While we are encouraged that ATF officials have uncovered so many cases of terrorist-smuggling activity, it would be an act of profound negligence to suggest that the problem is solved, and that, as a country, we should go on taxing smokers at ridiculous rates. New York Mayor Michael Bloomberg and other tax-happy lawmakers have given no hint that they understand the consequence of their nanny-state politics, which reach far beyond asking a smoker to cough up a few more dollars.
In February 2003, as we editorialized, 11 terrorists were
indicted for cigarette smuggling and funneling funds to Hezbollah. Yet
states and cities continue to demand higher cigarette taxes by employing
their "it's for the kids" populism. The only way to end this madness before
those funds end up financing bombs is to lower cigarette taxes now.
Unintended Consequences: Smoke and Bullets
Mens News Daily - by Geoff Metcalf
February 13, 2005
Terrorists are smuggling in the Continental United States and using the profits to attack and kill Americans.
Everyone makes mistakes. However, we expect adults to learn from mistakes, correct them, and not repeat the error.
Almost two-dozen governors (Democrats and Republicans) are guilty of a duplicity that is literally contributing to helping terrorists kill Americans.
The deeper I dig into the research on this issue the angrier I get. When I share the information with other veterans and active duty military, the most common reactions are unprintable.
One veteran observed, “they are shooting at our guys using bullets they bought from their cigarette smuggling enterprises…hey, fewer taxes, fewer bullets, you’d think it’d be a ‘no brainer’.”
A Special Forces NCO recently returned from Afghanistan and expecting to return to Iraq said, “My dad used to get cigarettes in his C-rations…I’m getting shot at by guys funded with the results of Rob Reiner’s anti-tobacco cops. That’s bullshit!”
A Marine veteran of Fallujah said, “If I live to vote again, I’ll get some payback…if I die, my brothers will make those politician wieners feel the pain…”
Governors ‘claim’ they don’t want to raise taxes (but they still ‘Jones’ for revenue). However, kinda like Bill Clinton parsing the definition of the word “is” they qualify “taxes”. They don’t dare consider property taxes because that would impact on a large constituency that might take anger into the voting booth. So they intentionally seek to tax a ‘politically incorrect’ minority they have already marginalized. They tax (and tax and tax and tax) cigarettes.
I have never smoked cigarettes and acknowledge the habit is unhealthy. However, tobacco is a legal product and frankly the excessive taxing of the product has created and unintended consequence that is more deadly than the vilified product.
I have been wading through GAO reports and assorted news stories that crystallize an empirical reality the P.C. crowd (and duplicitous Governors) have chosen to ignore. Terrorist’s organizations (Al Qaeda, Hamas and Hezbollah et al) have been actively trading in illegal cigarettes…right here in this country. The money (and it’s BIG bucks) from the illegal activity goes directly to funding bad guys killing Americans.
The money is huge and (if caught) the punishment is way less than dealing drugs. A recent GAO report titled ‘Federal Law Enforcement Efforts and Seizures Increasing’ reported:
“…some cigarette smugglers have ties with terrorist groups and there are indications that terrorist group involvement in illicit cigarette trafficking, as well as the relationship between criminal groups and terrorist groups will grow in the future because of the large profits they can make.”
This is not a defense of tobacco, but rather an indictment of the inability of politicians to recognize the consequences of jacking up the cost of cigarettes $30 per carton with “politically correct” taxes.
The terrorist connection has been reported (and ignored) in dozens of venues.
The Washington Post wrote, “Smugglers with ties to terrorist groups are acquiring millions of dollars from illegal cigarette sales and funneling the cash to organizations such as al Qaeda and Hezbollah…”
Associated Press reported, “ The alleged mastermind of a plot to smuggle $37 million worth of cigarettes into the United States has pleaded guilty to conspiracy and trafficking charges…”
The ‘Police Chief Magazine’ noted, “The trafficking of cigarettes by terrorists and their sympathizers has been going on worldwide since the mid-1990s, and the last four years have seen a sudden increase in trafficking. The trafficking schemes provide the terrorist groups with millions of dollars annually, which fund the purchasing of firearms and explosives to use against the United States, its allies, and other targets.”
The Washington Times reported, “ Law-enforcement officials say higher cigarette taxes nationwide in the past 10 years have spawned a cigarette-smuggling racket that finances crime syndicates and terrorist groups.”
Michael J. Garcia, Department of Homeland Security honcho for U.S. Immigration and Customs Enforcement said, “Cigarette smuggling…pumping incredible profits into criminal organizations. The number of their investigations has increased about 300-percent since April 2001.”
Gee, what has happened in the last four years that could contribute to such an increase? Oh yeah…government has created a market for bad guys to exploit.
There are consequences to everything we do in life. There is an overwhelming abundance of statistical data to confirm that confiscatory cigarette taxes aren’t doing ‘Jack’ to stop Johnnie and Jane from smoking…but it sure is pumping Billions of dollars to Abdul and Mohammand so they can kill Johnnie and Jane in Iraq, Afghanistan, or New York….
This is basic physics…action/reaction stuff. “Doctor, it hurts when I go like ‘that’…Well, don’t go like ‘that’….”
Any Governor (regardless of partisan stripe) who embraces
tobacco tax as a finesse to generate revenue would do well to heed a schoolgirls
definition from an old ‘Ladies Home Journal’, “Results are what you expect,
and consequences are what you get.”
Counterfeit cigarettes costing millions
April 4, 2005
TALLAHASSEE - Calls to a consumer complaint line tipped Philip Morris USA to a problem that's costing the cigarette giant and states around the nation millions of dollars while providing terrorists and organized crime groups an easy way to make money.
The red-and-white cardboard packs customers were buying looked like Marlboros, but actually were being made by counterfeiters who are profiting off one of the world's most recognizable trademarks.
Now Philip Morris is going state-to-state asking lawmakers to pass bills that allow law enforcement to better track sales with the hope of removing illicit cigarettes from the market.
Basically, the company is asking states to require anyone involved in cigarette sales, from the manufacturer to the corner store, to be licensed and document where the they received their product. Wholesalers would be have to make sure cigarette packs have tax stamps.
"We want to make sure that if a consumer is going into a store and paying $3, $4, $7, $8 a pack for a pack of our cigarettes that they're getting the quality they've come to expect," said Jamie Drogin, a Philip Morris spokeswoman. "Why should anyone else care? Revenue."
Her point has already been proven in California, where the number of legal cigarette sales jumped by more than 42 million packs the year after a law tracking sales was passed there. That helped raise $36.7 million in cigarette taxes in a state where cigarette sales had been declining in recent years, said Anita Gore, a spokeswoman for the state's Board of Equalization.
In addition to California, laws have already passed in 11 other states from Alaska to Georgia and there's legislation pending in another 15.
"We would absolutely love to see legislation passed in all 50 states," said Drogin. "We've confirmed counterfeit in 19 states and have reasons to suspect it in 23 more."
The laws deal not only with counterfeit cigarettes, but also contraband, or gray market, cigarettes. That problem involves people transporting cigarettes from a low-tax state and selling them in a state with higher cigarette taxes or importing legitimate cigarettes made overseas to avoid state and federal taxes.
Gray market cigarettes have been a problem for years. It wasn't until more recently that Philip Morris noticed the widespread sales of counterfeits.
"Consumers were calling in saying, 'It doesn't taste right, it tastes stale,' " Drogin said. "As part of our quality control process we had them send it in, give us the information where they got it and what we were discovering is they were actually counterfeit versions of our cigarettes. This is absolutely hurting our trademark - one of the most valuable trademarks in the world."
A U.S. General Accounting Office report on cigarette smuggling published last year said some people involved in the trade have ties to terrorist groups.
"There are indications that terrorist group involvement in illicit cigarette trafficking, as well as the relationship between criminal groups and terrorist groups, will grow in the future because of the large profits that can be made," the report said.
Most counterfeit cigarettes are coming into the country from China and other Asian countries through California, said Dean Boyd, a spokesman for U.S. Immigration and Customs Enforcement in Washington.
But the problem is spread throughout the country, he said, pointing to arrests made last year in a counterfeit cigarette ring based out of El Paso, Texas. Officials seized more than $18 million worth of counterfeit cigarettes in a case that also led to arrests in New Mexico, Florida, New York and California.
"It's not limited to any geographical area," Boyd said. "Criminal organizations are realizing that this is a way to earn substantial money with what they perceive as minimal or few risks."
His agency estimates that counterfeiters spend about $2 a carton to produce cigarettes and can sell them for as much as $70 a carton in places like New York.
"The total tax losses to this activity to the United States are estimated to exceed a billion a year. At the same time cigarette smuggling creates incredible profits for criminal organizations. It's an easy money making venture and where does that money go?" Boyd said. "It's lining the pockets of criminal organizations or, God forbid, going to terrorist organizations."
In Florida, Rep. Thad Altman and Sen. Mike Haridopolos, both Republicans from Melbourne, are sponsoring bills to try to stop counterfeit and contraband cigarettes. Each (SB 816 and HB 205) has one more committee stop before reaching the vote of their full chambers. The bills also make possession of counterfeit cigarettes a felony that carries up to five years in prison.
Haridopolos said there are many good reasons to support his bill.
"This is a legitimate health risk - besides the fact you're smoking cigarettes - because you don't know what you're getting in the product," he said. "Second, it's untaxed and third if we continue to allow this to happen, you're going to have these groups such as Hezbollah finding another source of revenue." Similar bills died in the Legislature last year, most likely because some House members were afraid an unrelated cigarette tax bill would be attached to it.
"It was just a mistake. It helped terrorists. We've had
a year of imported (counterfeit) cigarettes that slipped through that we
may have caught," Altman said.
Cig-Seller feud ends in death
New York Post
May 29, 2005
A dispute between two cigarette sellers led to a slap and a Macing, then escalated to a stabbing that left one of the vendors, a father of a newborn, dead.
Cops charged a Bronx man, Njasang Nji, 26, early yesterday with the murder of Luis Padilla, 20, also of The Bronx.
Padilla's family said both men sold bootleg cigarettes at 125th Street and St. Nicholas Avenue in Harlem, but on Friday their competition led to Nji smacking Padilla's common-law wife, with whom Padilla has a month-old son.
Padilla went after Nji but ended up getting sprayed with Mace and had to be treated at a hospital early in the evening, his brother, Andrew Martinez, told The Post.
Later, Padilla went to confront Nji again.
"I wanted to go together," Martinez said, "but he went and did it his way."
Padilla's wife, Mary Smith, 19, said she had warned him: "Be careful, just be careful. And call me when you get back."
But he never did.
Witnesses said Padilla was waiting on the street outside the Aristy Food Market on Kingsbridge Avenue in The Bronx when Nji, who lives on nearby West Kingsbridge Road, got out of a cab.
"I heard them cursing at each other," said a man who goes by the name Chino and was watching from his apartment window. "They were really going at it," cursing at each other, then Padilla "ran down the hill and the other dude chased him . . . he just started stabbing him."
Cops said Padilla, who had 14 arrests, was stabbed twice
in the left arm and chest and was pronounced dead on arrival at St. Barnabas
'Smoking' Gun Kills Gramps
New York Post
November 20, 2005
An elderly black-market cigarette dealer was found shot
to death in his Bronx apartment, police said yesterday.
Angel Jimenez, 71, was the victim of a robbery gone wrong, his friends said.
Pals of the elderly tobacco trader said he kept stacks of cash lying around his apartment in the Boston Secor houses on Bivona Street — leading many to believe a violent thief went after his ill-gotten gains.
"I'm sure he fought back," said pal Edwin Ortiz, 49, who, with cops, discovered Jimenez's body late Friday night. "I'm sure he didn't just let them take the money."
Ortiz said his buddy was badly beaten before he was shot in the head.
"He didn't deserve this," he said. "Who would want to shoot an old man like this? At 71 years old, he had no enemies."
Jimenez dealt bootleg butts he purchased on Long Island
— selling roughly 50 cartons a week at a profit of $25 each, a fellow dealer
said — but he was incredibly generous with his cash toward people in need.
Police Investigate String Of Cigarette Thefts
September 16, 2009
MADISON, Wis. -- Five burglaries in three weeks have Madison police looking for a thief who is targeting cigarettes.
The goal of a recent state and federal tax increase on cigarette taxes was to curb smoking in the country. But locally, it looks like it might have made cigarettes so valuable that some believe they're worth stealing.
DB's Service Center owner Dick Blatter said he has purchased a new door for the second time in 10 days.
"At 2 (a.m.), roughly, they broke through this window, the door, ran in, stole cigarettes and took off," said Blatter.
The convenience store's cameras captured the first hit, and even after beefing up security, the burglar returned. Blatter said the cameras showed the thief didn't stop to check out the register but instead was after one thing.
"The taxes are so high on cigarettes, the price is up so high. If you're poor, it's a good target," said Blatter. "They're about $75 a carton now."
Madison police are investigating a string of five burglaries in three weeks -- twice at DB's and at three separate Walgreens stores.
"What we're seeing here is something that's going on throughout the country," said East District Capt. Tom Snyder. "High tobacco prices, higher taxes on cigarettes, with Wisconsin being one of the highest states with taxes, that has led to burglaries occurring for the purpose of stealing cigarettes."
Wisconsin is sixth in the nation in cigarette taxes, adding $2.52 a pack as of this year. Burglaries weren't a consequence smoke free advocates saw coming.
"Most smokers are law-abiding citizens and certainly aren't going to try to do these kinds of things," said Maureen Busalacchi, with Smoke Free Wisconsin. "But obviously there's an element there and hopefully between efforts in public health and law enforcement we can curb that behavior."
"I've been here 27 years and we haven't had any problems until the first cigarette tax increase," said Blatter. "Now (since the taxes increased), I believe four times we've been hit."
Blatter said the thieves are stealing around the amount of his insurance deductible, so he's not getting his costs covered. He figured the only way to solve the problem for now is to catch the thief.
"He'll just be back, so we know we have to catch him," said Blatter.
Madison police said they're not sure what the burglar
is doing with the cigarettes, but investigators guessed that the thief
might be re-selling them, or even trading for drugs, as has been seen in
other cities around the country as these taxes have risen.