Smuggled cigarettes snuffing out Wash. tax dollars

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by JANE MCCARTHY & KREM.com

KREM.com

Posted on July 11, 2013 at 12:01 PM

Updated Thursday, Oct 17 at 7:43 AM

SPOKANE, Wash. -- The owner of Tobacco, Beer & More, Jeff Toole, said he is accustomed to competition from other stores. Yet when some rival shop owners smuggle in cigarettes illegally, the game changes.

Toole said customers often ask about price discrepancies. “How come I can buy this tobacco item down the street for 90 cents cheaper, or a dollar cheaper?” askedToole.

The answer is sometimes illegal cigarettes – smuggled in by a store owner and sold for less.

Lieutenant Rod Mittmann with the Liquor and Tobacco unit of Washington’s Liquor Control Board said his agency has recently busted some store owners for buying cigarettes cheaply across state lines – or on tribal land -- and bringing them to Spokane to sell them.  Lt. Mittmann said you can usually tell cigarettes are illegal because either the tax stamp is missing, or it’s from a state other than Washington.

The Washington Department of Revenue calculated in the last year, more than one third of all the packs sold in Washington were illegal.  That works out to about 101.4 million untaxed packs or a state revenue loss of more than $376 million dollars in just one year.

“It’s frightening,” added Lt. Mittmann. “It’s more common than you think, because everybody wants to make a dollar. Everybody wants to save a dollar.”

The difficulty lies in the fact that Washington is surrounded by states that tax their cigarettes at a fraction of Washington’s. Idaho adds a 57 cent tax to a pack, Oregon adds $1.18, and Montana adds $1.70.  Meantime, Washington state tacks on a three dollar and two-and-a-half cent tax.

Washington’s tax on cigarettes is the fifth highest in the nation.

The Mackinac Center for Public Policy ranks Washington with the fourth highest cigarette smuggling rate in the country as a result of the steep tax.

“One of the main reasons for this rash of black market activity is the large difference in state cigarette and tobacco tax rates across the country,” said the Executive Director of the National Association of Tobacco Outlets.

Even smokers chimed in on the illicit activity.

“Human nature would dictate if they’re close by cheaper, they’re going to go where the product’s cheaper,” said Paul, a smoker.

Josh, another smoker, said that he has personally come across illegal cigarettes. “My pack of Camels tasted a little bit different,” he said, “and I looked and it was . . . this isn’t even this country.”

Even non-smokers are affected by cigarette smuggling.  Taxes from cigarettes pay for things like education, transportation, as well as health care and human services.

Lt. Mittmann said it’s hard to track whether or not smuggling gets worse as taxes increase. “That’s really hard to detect, and the only reason why I say that is there’s not enough of us to go around and go and find out. We try.”

To make matters worse, budget cuts stripped staff from the agency charged with tracking down smugglers. There was previously a unit devoted to monitoring tobacco sales. Now Washington Liquor Control agents are left to the job.  Each is responsible for trying to keep hundreds of stores in check all while juggling new liquor and marijuana laws.

“We do the best we can,” said Lt. Mittmann, “and when we find it, we take the appropriate action. But I’d be willing to admit there’s more out there than we can handle right now.”
So as it stands now, hundreds of millions of tax payer dollars are going uncollected each year.  And legitimate retailers worry they could be taken out by the black market.
“It’s pretty tough to survive,” Toole said.

As it stands now, there are no plans to re-instate a dedicated Washington State Tobacco Enforcement Unit.   Still, many people believe the only real long term solution is to bring Washington tobacco taxes more in line with other states.

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