(The Center Square) – New York has regained its top billing among states for inbound tobacco smuggling, according to a new report, which attributes the robust underground market to the state’s high tax burden and anti-smoking policies.
The nonpartisan Tax Foundation report ranked New York No. 1 for inbound illegal tobacco smuggling, with an estimated revenue loss of more than $1.2 billion in 2024, the latest year for which data is available. The report said 61 % of the cigarettes consumed in New York still come from the illegal market, up from 51.8 in 2023. That helped it move up from No. 2 spot in last year’s rankings, pulling ahead of California.
The report’s authors said the move by New York and other Northeast states to raise cigarette taxes and ban certain tobacco products has made cigarette smuggling both a national problem and a lucrative criminal enterprise.
“Higher tax rates can incentivize smuggling. As tax rates increase, consumers and suppliers search for ways around these costs,” said Adam Hoffer, the Tax Foundation’s director of excise tax policy. “In cigarette markets, consumers tend to shop across borders where the tax rates are lower, and dealers develop black and gray markets to sell illegally to consumers, paying little or no tax at all.”
New York has the highest cigarette taxes in the nation, charging $5.35 in excise taxes per pack, compared to $3.51 in neighboring Massachusetts and $3.08 in Vermont.
The state increased the rate by $1 per pack in 2023. New York City levies an additional excise tax of $1.50 per pack, bringing the combined tax rate to $6.85 in the city.
Other states in the Northeast region are also dealing with increased tobacco smuggling as they hike taxes on smokes and ban flavored vaping products. Massachusetts was ranked 3rd in the nation for inbound tobacco smuggling.
Maine ranked 25th in the nation for inbound smuggling with more than $7 million in revenue losses while Connecticut ranked 12th with more than $60 million in losses.
Virginia was one of the largest benefactors of smuggling-related cigarette tax revenue in 2024, netting more than $61 million. Indiana followed close behind with net smuggling generating more than $56 million for the state.
“Legal markets suffer when untaxed and unregulated products receive significant competitive advantages from high taxes and prohibitions,” Hoffer said. “Illicit markets create additional dangers for consumers, and subsequently additional burdens on public health, and undermine both legitimate domestic businesses and state revenue generation.”
