N.H. high in cig smuggling, but feds pay little mind

An image of illegal cigarettes. (Courtesy image)

A larger percentage of cigarettes bought in New Hampshire are illegally smuggled nationwide than any other state, but most of the smugglers are either small-time mom and pop operations or just someone from a neighboring New England state trying to save a few bucks on his smokes.

When it comes to real organized cigarette –smuggling operations involving syndicates, organized crime and even terrorist organizations far more come from southern states like South Carolina and North Carolina where no state tax stamp is required on cigarette packs making them easier to sell in other states using a counterfeit stamp, according to one ATF agent who spoke to The Lebanon Voice last week.

While most folks around the Seacoast recognize that New Hampshire’s low cigarette tax have long attracted residents of neighboring states to take advantage of the Granite State’s low prices, a recent study by the Tax Foundation shows just how popular it is.

Among the findings:

• Smuggled cigarettes make up substantial portions of cigarette consumption in many states, and greater than 25 percent of consumption in twelve states.
• The highest inbound cigarette smuggling rates are in New York (56.9 percent), Arizona (51.5 percent), New Mexico (48.1 percent), Washington (48 percent), and Wisconsin (34.6 percent).
• The highest outbound smuggling rates are in New Hampshire (24.2 percent), Wyoming (22.3 percent), Idaho (21.3 percent), Virginia (21.1 percent), and Delaware (20.9 percent).
• Cigarette tax rates increased in 30 states and the District of Columbia between 2006 and 2012.

But while North and South Carolina are not listed in the top five, Jeff Cohen, an ATF Associate Chief Counsel based in Philadelphia, told The Lebanon Voice that that is where the lion’s share of organized smuggling takes place, chiefly because both states choose to have no tax stamp that appears on “legal” packs of butts. He said both states also have low cigarette taxes, 57 cents in South Carolina, and 45 cents in North Carolina.

Meanwhile, in New York, where more smuggled cigarettes end up than any other state, the tax is $5.85. In Massachusetts, the tax per pack is $3.51.

“It’s very attractive for organized smugglers to smuggle cigarettes from the Carolinas, because they take them to other states, stamp them with a phony (tax) stamp and they appear perfectly legal.

Even though New Hampshire has the largest percentage of bought and smuggled butts, it’s way down the ATF’s list of targets and law enforcement resources.

“Some guy going in a station wagon, then selling them in a store or to friends is a whole different echelon,” Cohen said. “There’s a big difference between this type of mom and pop operation to organized crime.”

He said anti-American terrorist groups are also getting into the act, finding smuggling smokes around the country an easy and lucrative operation and way to raise money for their nefarious purposes.

“Let’s face it. The fact is is that you’re not dealing with illegal drugs here. Cigarettes are legal, and that’s what makes this endeavor so attractive,” Cohen said.

In a nutshell here’s what makes this practice so lucrative. According to the ATF, “legal purchasers pay significant taxes on their product, including $1.08 per pack in federal excise tax, from $0.17 to $4.35 per pack in state and local excise taxes, and typically $0.60 per pack to a settlement fund for health care costs incurred by the States because of tobacco use by their citizens. Manufacturers and distributors of contraband tobacco products reap substantial profits by avoiding federal and state excise taxes.

“For example, purchasing legally taxed products in Virginia (a low excise tax state) for approximately $4.50 a pack and reselling them in New York City, N.Y., (a high excise tax city in a high excise tax state) for approximately $13, creates an estimated $8.50 per pack profit margin. In this example, a single carton (10 packs) yields $85 in profits; a single case (60 cartons) yields $5,100 in profits and a single truckload (typically 800 cases) yields $4.08 million.”

Besides grappling with organized crime’s growing appetite to make huge profits in interstate cigarette smuggling, makers of counterfeit cigarettes are also tapping into their own lucrative market.

The most popular cigarette to replicate is Marlboros, and unlike a decade ago when most smokers could tell the difference between a legit Marlboro and a counterfeit, that is not the case today, Cohen said.

“Most people can’t tell the difference any more,” he said, adding that the Chinese, Russians and Paraguayans were some of the most sophisticated in this regard.

Interestingly, while little attention is being paid to Bay Staters and other New England residents packing up their SUV with New Hampshire smokes, the ATF is aware of a recent wrinkle in which smokeless tobacco is illegally being imported into the state from Pennsylvania, Cohen said. Smokeless tobacco gets no tax stamp, but they are aware of the problem and are taking steps to step up enforcement, he said.