Wyoming has been ranked as the surprising number one state in the country when it comes to cigarette smuggling, as a study shows that taxes should be increased.
Cigarette sales in Wyoming have the highest chance of ending up in the black or gray market, with 42 percent of the state’s cigarette consumption going to smugglers who take products out of state, according to a recent study. study by the Tax Authorities.
The study consists of 2022 data and estimates comparing state tax data with U.S. Census Bureau consumption surveys.
This was stated by the director of excise policy at the Tax Foundation, Adam Hoffer Cowboy stands daily: ‘Wyoming is a relatively small consumer of cigarettes, compared to, for example, California. Small changes in consumption patterns can therefore really change the smuggling estimate.’
Hoffer said the group’s analysts have been “kind of intrigued by Wyoming for a number of years.”
The state’s high smuggling rate is also compounded by its proximity to more restrictive states, such as Utah and Colorado.
The estimate of inbound smuggling in Utah in 2022 is 20.46 percent, according to the report, meaning about one-fifth of cigarettes consumed in Utah were smuggled into the country.
Colorado’s inbound smuggling rate is also 19.86 percent, according to the report, and taxes cigarettes at $1.94 per pack, compared to Utah’s tax of $1.70 per pack.
Cigarette sales in Wyoming are most likely to end up in the black or gray market, with 42 percent of the state’s cigarette consumption going to smugglers who take the product out of state
The Tax Foundation noted an increase in inbound smuggling in Colorado, plus an increase in outbound smuggling in Wyoming, after Colorado doubled its per-package tax rate in 2021.
In 2020, when Colorado’s cigarette tax was 84 cents per pack, inbound smuggling endangered 7.96 percent of the state’s consumption.
At the time, Wyoming’s outbound smuggling was 24.35 percent of its own sales, and the state did not show the highest percentage in that area as in the more recent study.
Wyoming considered nearly doubling its tax rate on cigarettes in 2022, but the House Revenue Committee halted the effort in 2023.
Just behind Wyoming, Delaware ranks second, with 34.43 percent of cigarette consumption going to out-of-state smuggling, and New Hampshire follows at 31.43 percent.
Of the 15 states besides Wyoming that have outbound cigarette smuggling, five have a lower per-pack tax rate than Wyoming, although all reported less outbound cigarette smuggling, according to the study.
For example, Missouri, at number seven, had an outbound smuggling rate of 14.67 percent, with cigarettes taxed at just 17 cents per pack.
However, Hoffer also noted that Missouri’s overall market is much larger than Wyoming’s, so these numbers do not mean that a potentially large outbound smuggling volume does not exist.
New York ranks as having the highest rate of inbound smuggling overall, according to the study, with an estimated 54.3 percent of cigarettes consumed in the state in 2022 coming from smuggled sources. The state taxes cigarettes at $4.35 per pack
Of the fifteen states besides Wyoming that have outbound cigarette smuggling, five have a lower per-pack tax rate than Wyoming, although all reported less outbound cigarette smuggling.
“(Missouri) borders so many states that this is the center of outbound cigarette smuggling for that region of the country,” he said. “Probably Missouri has more net outbound smuggling than Wyoming, but it’s a smaller percentage of what’s consumed (here).”
New York has the highest rate of inbound smuggling overall, according to the study, with an estimated 54.3 percent of cigarettes consumed in the state in 2022 coming from smuggled sources. The state taxes cigarettes at $4.35 per pack.
Closely followed by California, with 46.7 smuggled of total consumption, ahead of New Mexico with 41.2 percent and Massachusetts with 39.7 percent.
California taxes its cigarettes at $2.87, New Mexico at $2 and Massachusetts at $3.51.
From 2007 to 2022, New York is said to have suffered the largest net combined revenue loss at $21.1 billion, followed by California at $12.7 billion.
The report also acknowledges other factors that may contribute to smuggling, such as flavor bans such as the ban on menthol cigarettes starting in June 2020 in Massachusetts.
The following year, the state saw its revenue drop by almost 24 percent compared to the year prior to the ban.
“This decline translates into $135 million less in cigarette tax revenue for Massachusetts,” the study said.
Just behind Wyoming, Delaware ranks second with 34.43 percent of cigarette consumption going to out-of-state smuggling, and New Hampshire follows with 31.43 percent.
The report also acknowledges other factors that may contribute to smuggling, such as flavor bans such as the ban on menthol cigarettes starting in June 2020 in Massachusetts. The following year, the state saw its revenue drop by almost 24 percent compared to the year prior to the ban
States that have experienced net inbound smuggling since 2022 have lost more than $5 billion in potential tax revenue, according to the study.
It further pointed out that states seeking to increase tax rates must consider “unintended consequences,” including the growth of criminal distribution and illicit trafficking.
“In cigarette markets, consumers tend to shop across borders, where tax rates are lower and dealers develop black and gray markets to sell illegally to consumers, paying little or no tax at all,” the study said.
“The increasing tax levels and disparities on cigarettes have made cigarette smuggling both a national problem and a lucrative criminal enterprise.”