Convenience Store Decisions, June 2018

Category Management Cigarettes But a smaller smoking population is only one factor affecting product performance The black market steals sales too From shipping thousands of contraband cartons to hustling individual cigarettes black market distribution takes on many forms Some traffickers will fill their trunks with cigarettes from Virginia by going store to store and purchasing the legal maximum and then drive to Manhattan where they put the cigarettes in their backpacks or bags to sell on the street said Michael LaFaive senior director of Morey Fiscal Policy Initiative with the Mackinac Center for Public Policy Take New York state as an example Several studies rank it with the highest cigarette smuggling rates year after year CIGARETTE SMUGGLING RATES High state cigarette tax rates has increased smuggling as buyers procure discounted packs from low tax states to sell in hightax states New Hampshire in 2016 had the highest level of outbound smuggling defined as cigarettes leaving a state at 8569 of consumption likely due to its relatively low tax rates and proximity to high tax states in the Northeastern U S Following Wyoming Delaware and West Virginia State New Hampshire is Idaho 2495 outbound smuggling Legal Sales packs per Capita 2016 Tax Rate 2016 Outbound Smuggling Rate New Hampshire 915 178 8569 Idaho 407 057 2495 Wyoming 546 060 2225 Delaware 681 160 2072 West Virginia 955 055 1957 Source Mackinac Center for Public Policy 2017 In fact some estimates show that more than half of the cigarettes smoked within its borders are purchased illicitly The tax foundation says nearly 57 of cigarettes consumed in New York state are purchased from unregulated untaxed sources said Jim Calvin president of the New York Association of Convenience Stores Researchers at the Mackinac Center estimate the black market cost the New York government at least 15 billion in excise tax revenues in 2016 For c stores each illegal cigarette carton sold represents more than just one missed tobacco transaction Our members have been crippled by precipitous drops in sales of tobacco and ancillary products due to tobacco customers suddenly shifting their purchases to smugglers and other untaxed outlets to avoid exorbitant taxes said Calvin As cigarette sales suffer so do larger basket transactions All of us know fewer trips to our neighborhood facilities impact our overall ancillary sales in other categories such as snacks grocery items beverages hot prepared foods and of course fuel purchases said Lance Klatt executive director of the Minnesota Service Station Convenience Store Association TAX BURDEN Not every state struggles with an extensive illegal cigarette trade According to data from the Mackinac Center Nebraska Pennsylvania South Carolina and Tennessee have little illicit activity That said analysts suggest theres a reasonable correlation between the rate of taxes in a state or local municipality and the level of smuggling a community experiences We update our estimates on an annual basis and in the states with high taxes make no mistake there are competitors that do not follow the law especially those with larger border populations said LaFaive In states like New York not only is there a high state excise tax but retailers in cities like Manhattan also deal with a city tax They are almost compelled to participate in the illicit market so as not to lose complimentary goods sold with tobacco products New York state excise tax currently sits at 435 tied with Connecticut for the highest in the country Effective June 1 New York City is imposing a new excise tax on cigars and other tobacco products OTPs new minimum prices on cigars 8 per stick and other OTPs and a higher minimum price on cigarettes 13 per pack said Calvin These price spikes will drive even more consumers into the waiting arms of the street dealers While New York holds the dubious honor of incurring the highest smuggling rates it is certainly not alone Rounding out the top five states incurring the highest incoming smuggling rates for 2016 included Arizona 44 state tax 2 Washington 43 state tax 3025 New Mexico 41 state tax 166 and Minnesota 35 state tax 3614 Tobacco purchases in Minnesota have decreased by nearly 30 in the past two years due to high tobacco taxes said Klatt Conversely New Hampshire boasts the greatest number of cigarettes taken out of the state For every 100 cigarettes smoked in the state another 86 are transported elsewhere Complicating matters is the fact that when legislators look for ways to recoup falling tax revenues associated with shrinking cigarette sales they often land on the solution of raising taxes on more tobacco products According to NACS research 26 states have hiked cigarette taxes over the past five years CSD 38 Convenience Store Decisions June 2018 cstoredecisions com