The State of Massachusetts has established a commissioin to study the impacts of the sale of illicit tobacco products.
Illegal Tobacco Commission
SECTION 182. There shall be a special commission to study the economic impact of the illegal tobacco market in the commonwealth which shall consist of: the commissioner of revenue or a designee, who shall serve as the chair; the state treasurer or a designee; 1 member of the house of representatives; 1 member of the senate; the secretary of administration and finance or a designee; the attorney general or a designee; the executive director of the Northeast Association of Wholesale Distributors or a designee; the executive director of the New England Convenience Store Association or a designee; and 1 person to be appointed by the governor.
The commission shall study and report on the illegal tobacco distribution industry in the commonwealth and the resulting loss of tax revenue. The commission shall investigate, report and make recommendations relative to: (1) the regulation, oversight, distribution and sale of all tobacco products sold in the commonwealth; (2) the illegal tobacco market in the commonwealth; (3) the loss of tobacco excise and sales tax revenues in the commonwealth as a result of the illegal tobacco market; (4) methods to maximize the collection of tobacco excise and sales tax revenues being lost to the illegal market; and (5) enforcement and penalties for violations of laws relative to the collection and reporting of all tobacco taxes under chapter 64C of the General Laws.
The commission shall convene not later than November 1, 2013. The commission shall prepare a report detailing its findings and recommendations, together with drafts of legislation necessary to carry those recommendations into effect, by filing the same with the clerks of the senate and house of representatives, the chairs of the house and senate committees on ways and means and the senate and house chairs of the joint committee on revenue not later than March 1, 2014.
| Members of the Commission include: | |
| Detective Lieutenant Robert Irwin | Massachusetts State Police, Governor Appointee |
| David Sullivan | General Counsel, Executive Office of Administration & Finance |
| Matthew Schrumpf | Assistant Attorney General, Attorney General Appointee |
| Al Gordon | Deputy Treasurer for Policy, State Treasurer Appointee |
| Representative Brian Mannal | House of Representatives Appointee |
| Senator Michael Rodriques | State Senate Appointee |
| Paul Caron | Executive Director, Northeast Association of Wholesale Distributors |
| Stephen Ryan | Executive Director, New England Convenience Store Association |
Public Comments
GloucesterTimes.com, Gloucester, MA
October 22, 2013
New tobacco tax seen fueling smuggling
By Andy Metzger
State House News Service
—- — BOSTON — The $1-per-pack jump in cigarette taxes and the more than doubling of chewing tobacco taxes will provide an incentive for organized crime to draw more profits out of Massachusetts users while stiffing the state, tobacco industry executives told a state panel Monday.
“I’ve heard some criminals celebrating tax increases,” Reynolds American Inc. Director of Corporate Security Steve Grimaldi told members of the Illegal Tobacco Commission, an advisory panel set up as part of July’s tax law.
New tobacco taxes are expected to raise $157.5 million annually, delivering a jolt of revenue for state spending priorities while policymakers are steering new state dollars into public transportation.
But while some lawmakers cheered the potential for higher costs to discourage smoking, others — like Rep. Brad Hill, the Ipswich Republican whose district includes the town of Manchester — say tobacco tax increases are a “stimulus package” for New Hampshire, and five “mom and pop” shops in Hill’s district closed after the last cigarette tax increase.
“Every time you increase this type of a tax, you’re going to see an increase in sales in New Hampshire,” Hill had said previously in a floor debate on the tax bill. “In New Hampshire within a month of passing the last tax increase, if you went to the smoke shops – I counted the plates – over 80 percent of the plates are Massachusetts consumers. That’s what’s going to happen.”
The potential boon for organized crime was not a major point of argument in the tax debate, which also included a computer services tax. That tax was repealed by the Legislature soon after its passage, with Hill and Senate Minority Leader Bruce Tarr among the leaders of a push for the state to back off.
“I think that’s why the Legislature recommended the commission, because it is complex with a lot of ramifications,” Department of Revenue Commissioner Amy Pitter told the News Service, saying the commission will be able to delve into financial and criminal aspects before releasing its report.
Citing data from the Mackinack Center for Public Policy and the nonprofit Tax Foundation, the Reynolds security official said smuggled cigarettes made up about 60 percent of cigarettes sold in New York in 2011, and he said the tobacco company is determined to fight the illicit trade, which undermines its business connections and supply network.
Grimaldi said organized crime brings tobacco from southern states up the “New Tobacco Road” of Interstate 95, and he said a truckload of cigarettes from Virginia would have the potential to yield $385,000 in Massachusetts by skirting the state’s taxes.
The excise tax on cigarettes in New Hampshire is $1.68 per pack — more than the 30-cents-per pack rate in Virginia, but well below the Massachusetts charge of $3.51 per pack.
“A lot of people don’t understand what is going on or the gravity of it. And it is a huge, big, big business,” said Grimaldi, who said states should devote law enforcement to the specific crime, and said the Bureau of Alcohol Tobacco Firearms and Explosives has not made tobacco smuggling enough of a priority, while Virginia has taken steps to reduce the trade.
He said, “Illicit cigarettes are now the currency of illegal organizations,” and said cigarette smuggling is more lucrative and less risky than drug smuggling.
Northeast Association of Wholesale Distributors Executive Director Paul Caron described to his fellow commissioners how retailers buy smuggled tobacco, keeping that under the counter for sale to regular customers while keeping some legitimate tobacco on hand for strangers. He told the News Service that Massachusetts is “hemorrhaging tens of millions of dollars” through underground tobacco sales.
Department of Revenue chief economist Kazim Ozyurt said it is “hard to quantify” how much reduced sales are caused by people changing smoking habits versus buying illicit cigarettes, and he said the tobacco revenue is “pretty much on target with what we thought.”
The state expects to bring in $688 million in total tobacco taxes this year. DOR factored in a $57 million to $64 million “downward adjustment” caused by the price increases, and the state will take in slightly less in the first fiscal year of the new taxes because the tax went into effect after the beginning of the year.
Reynolds executive Steven Gentry counted “social acceptance of tax evasion” among the public policy reasons to clamp down on the illegal cigarette trade.
NACS Online / News & Media Center / News Archive
Massachusetts Tobacco Tax Fuels Smuggling
BOSTON – The increase of a $1 per pack cigarette tax, plus the more than two-fold bump in chewing tobacco taxes is proving a boon for tobacco smugglers, tobacco companies told a Massachusetts state panel this week, State House News Service reports.
“I’ve heard some criminals celebrating tax increases,” said Steve Grimaldi, director of corporate security for Reynolds American Inc., to members of the Illegal Tobacco Commission. The state raised the rate in July, driving many residents across the state line to New Hampshire.
Massachusetts planned on the revenue from the higher taxes — estimated to be $157.5 million a year — to plug holes in the state budget. State Rep. Brad Hill pointed out during debates on the tax hike that increasing the tobacco tax would provide neighbor New Hampshire with a “stimulus package.”
“Every time you increase this type of a tax, you’re going to see an increase in sales in New Hampshire,” said Hill during a floor debate on the increase. “In New Hampshire within a month of passing the last tax increase, if you went to the smoke shops – I counted the plates – over 80% of the plates are Massachusetts consumers. That’s what’s going to happen.”
Grimaldi pointed to data from several nonprofit groups that showed New York’s illicit cigarette trade accounted for 60% of all cigarettes sold in 2011. Organized crime brings up Virginia cigarettes (taxed at 30 cents per pack) by the truckload for illegal sales in Massachusetts to skirt the $3.51 per pack tax.
“A lot of people don’t understand what is going on or the gravity of it. And it is a huge, big, big business,” said Grimaldi, who added that Virginia has been working on lowering tobacco smuggling. “Illicit cigarettes are now the currency of illegal organizations.”
The Massachusetts Department of Revenue has countered those claims by saying that revenue from tobacco sales is “pretty much on target with what we thought” it would be, said chief economist Kazim Ozyurt. Massachusetts estimates tobacco taxes would generate $688 million in 2013.