From: WPRI.com Eyewitness News
High tax rate contributes to illegal sales
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – Nearly 40% of the cigarettes sold in Rhode Island are illegally smuggled in from other states, according to a report released by the Washington D.C.-based Tax Foundation.
At 39.8%, the report ranked Rhode Island fifth in the country for smuggling rates in 2011, behind only Washington, New Mexico, Arizona and New York, which tops the list at 60.9%. The Ocean State ranked first in smuggling in 2006.
The report found that the states with the highest smuggling rates tend to have the highest cigarette taxes, leading some experts to suggest tax cuts could be one solution to the problem. Michael LaFaive, a director for the Michigan-based Mackinac Center for Public Policy, said lowering taxes and creating “more sophisticated” tax stamps could help to curb smuggling, but he said many states are hesitant about making changes.
“Lawmakers are often as addicted to the tobacco tax as users are to tobacco,” LaFaive told WPRI.com.
Rhode Island taxes cigarettes at $3.50 per pack, second highest in the country behind New York, which charges $4.35 per pack. According to LaFaive, the majority of cigarettes smuggled into the state are for commercial consumption.
LaFaive singled out New Hampshire, as a potential source for many smugglers. With a tax rate of $1.68 per pack, LaFaive said his research indicates that for every 100 packs of cigarettes consumed in that state, 27 packs are smuggled out.
“It’s not just the tax rate, it’s the tax differential between states close the Rhode Island,” he said
In 2012, state Rep. Robert Phillips, D-Woonsocket, proposed reducing the cigarette tax by $1, but the legislation never made it to a vote. Phillips argued that reducing the tax would make the state more competitive with Massachusetts and Connecticut.
“We need to think smart about handling our cigarette tax, and that means looking at it differently than other states do,” Phillips said at the time. “Unfortunately, we live in a small state. It’s easy to drive over the border into Massachusetts and Connecticut even if you’re not living in a border community. That’s not a problem other states have right now.”
