More Evidence NY’s Cigarette Tax Hike Was a Bust

More Evidence NY’s Cigarette Tax Hike Was a Bust

via Big Government by Capitol Confidential on 1/15/12

The Empire State is struggling to bring in additional tax revenue it projected it would gain from efforts to stop smokers from buying untaxed  cigarettes on Indian Reservations, reports the New York Post:

The state's tax collectors were recently calling around to convenience-store owners, wondering what was up. The $130 million in extra tax that Albany was expecting from a change in the law about cigarette sales on Indian reservations wasn't happening.
A memo sent to members of the New York Association of Convenience Stores from the group's president, Jim Calvin — a copy of which I have on my desk — said, "I got a call from Gov. Cuomo's budget office yesterday. In examining cigarette tax receipts so far this fiscal year (April 1 to March 31) it looks like they will fall considerably short of their projection in new revenues. . . ."
The state had hoped to get the extra dough by enforcing a new law that made it illegal for licensed cigarette wholesalers in the state to sell untaxed name-brand cigarettes like Newport and Marlboro to Indian reservations.

Why the need for the extra measures focused on Indian Reservation sales in the first place?

In short, going "On The Reservation" and buying untaxed, name-brand cigarettes became an appealing prospect to many smokers following New York's institution of a $1.60 per pack cigarette tax hike in 2010:

The reservation store would sell the cigarettes to non-Indian customers who were trying to avoid the hefty taxes imposed by the state. The state and legitimate sellers of cigarettes were both hurt.
The sale of nontaxed smokes by stores on Indian reservations became an issue two years ago when the state cigarette tax was raised significantly and many smokers took more of their business to reservations — or to Internet sellers — whose packs aren't taxed. Some folks even bought lower-taxed cigs smuggled in from out of state.

The news that New York could be $130 million short of projected revenue as a result of its particular approach to sin tax policy may serve as a timely reminder to legislatures kicking off their sessions in states around the country where cigarette tax increases are being proposed, either by lawmakers or influential interest groups.
Among those states are Alabama, Georgia, Idaho, and Maryland, the latter of which in particular is no stranger to the issue of black-market sale of smuggled cigarettes.