A REPORT ON Y-EW YC-7'-':r CI--`--" S TMI. :7N.ND
NICOTINE,
TAX, BASED C", CC':S'-':-!?T---n-': DITA FCR THE
FIRST
TWELVE IMONTHS FOLIOW:NG 7TS !'-!?0SITIC"-
comoiled '--.I
The Council 1-gainst Cicarette Bcotlecq4nc
211 Easz 4--rd St.
Suite 505
Nevi Yo--'--., N.Y. 10017
Octobcr 1912
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The New York State Comnissicn of Investigation
statcd at the conclusion
of its -public hcaring into the bootlegging of
cigarettes into New York
City and State by elements of organized crime:
"it is undis=utod t'-at the heart of the entire
problc.-;i
lies in the wido dis-.Daril-. hZt,..:ce,-i the
price of a package
of cigarettes in some Southern states, such as
Nort.' 'i
Carolina, and in Nou Yor' Citv . The nricc here is
almost
double. This price diS_~ar4t-., has nurturc,4 a
flourishina
s,naugglinq business innumerablc unlawfull.
indapendent
cuick-nrcf--t seekers and or~_anized criminal
alements
import an-,"- huce a-_artities of unta%ad
ciaarettes
to an insatiable _pu'blic, eager to buy low cost
cigarettes."
7 -
The imposition of the New Yor'-. City tar and
nicot-Iine tax on july 1,
1971 further inc_-eased this ~=rica
di_`*fe=-_-t_;al. As a result, t-e
incentive and prcflt _'or organi=ea cr_=e to
bootleg cigaret-tes has
been increasec. This pa--ticular tax has also
further ccmplicatcd
the process of ta:cinc ard cicarattes for the
legitimate
cigarette re-_ailers, vendo--s and w*-o-2--salers.
Bet-..ieen the incre_=sed
.. t*-e a,4A4t4Cna!
cigarette bcct-legg-ing and =rcblems involve'd in
ci-:arette
taxation and: distributicn, the continued
existence of the legitimate
c,qarette industry in Nea Ycr',. Citv and Stat~2
is auestionablo.
1. Effects of t'-e tar a-d: nicstine tax
on Ne,,.; 'Zo-?-.< S-_~7:e
In the first twelve months following the
imposition of thL- Ne,.-i
York City tar and nicotine ta:c, cigarette sales
in New York State de-
clined 2 .1 percent-, This decline means that in
addition to the 400-
million packs of cigarettes being bootlegged
annually into New York
State by organized crime as con_:'1.rmcd b-.1 the
State Invstigation
Co7,L-,ji,-sjon, ancth.:!= 4G miji-icr,. packs
will be smuggiccl into the State
CD
as 11 rc~~ult of the tar and nico'_-inc tav. The
Statc, at its present CD
t,l:: ratn of 115 ccntz !)or v.-_ill lozc somc $7
Million uo:~ y0ar
F
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II.Efrocts of the tar nn:~- nicotinc ta:~-
on ciu%'
Now York City estizzated that the tar and nicotine
tax ..;ould result
in revenucs of $20 million annually. This,
howcver, has not been the
case. Since the imposition of the ta;:, cigarette
sales in York
City have declined 11.7 nercent, costing the City
scme $4 mIllion in
lost revenues from its $.04 excise tax on
ciaarcttes. in addition, both
the City and State have lost a total of $2.5
Mill4on in sales ta:ces on
ciqarettes. Therefo==_, adding all the City and
State losses together,
13.5 million, the New '-,'ork City tar and
nicotine t_nx has only net $6.55-
million to t`we two govor=ental agencies. Even
this gain, however, w-J-1-1
be -further olfset by t*ine increascd
administrative problems associated,
with enforccment and collection of the tax.
111. Effects of t'-e tar and nLCCt_4-3 t2x
on orcan_,.-ed
The State Commls_cicn of' Investigation clear!,.,
-Lndicatad at its
hearinas that tax diffarentials o,- c_-'ca.:-ett9s
states -Is the
primary incentive for tne involvement of
organi--cd crime in cigarette
-hootlegging. The fact that cigarette sales in Nea
York State have
aeclined by 2. 1 percent -- 11. 7 percent in New
York City -- at a ti:rc
wh an national sales have increased 2 to 3
percent, that
organized crime has taken advantage of the
increased tax differentials
caused by the tar and nicotine tax, and is
bootlegging evcn greater
q
.ruantities of cigarettes into New York City and
State. Orcanized crime,
based on consarvative estimatcs, ma:es a net
profIt of $1.00 per cartcn
on booticggoc-I cigarcttes. Thcroforc, on the
additional 46 million P':Ic%S (-Ili
bc-ing bao',~Icc_:ccd into t!-::~ Statc, organizcd
crimc 'has ~made r)rofits of
$4-G mjljJ.oi,.. There is no douut: that cicanizcd
cri-.ic has L-ccn the
_Ij
Of YC.!.*'-, City's uIr and
CrII
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IV. Effi~lct r1f t!-,(-! tnr z7nO. t.-1:-: nn
Since 1965, the tobacco industry in York State
hams lost over
2.2 billion packs in cigarette sales to cigarette
bootloggero, worth
Q7.1 ell: billion in gross retail sales. This loss
of cigarette volume
also ind-;catcs that fe-.rer shopping trips were
mad--e to cigarette
retailers and, as a result, additional lcssos
.-;--re incurrcd in the
sale of allied products such as candy, tissues,
razor blades and
thous:inds of other sundries. The verY ex--stcnce
of the legitimate
--irette trade in Nca Yor% C-4+--%, and St-at-3
has been sericu-sly threatened
by the tar and nicotine ta:c..
V. Effect of the tar and nicctine --ax o-
cicaratt-a Jo'-11--ers
In view c-` t'-c ccmplexit~, of the n;-n*,-:
t-=:,: stzact*-,r2, prcble-5 arise
at t-e sourc2 of collecz:icn, namely, at t'-a
cigarette joh-ters. Prior
to the imposition of the new ta::, all pa-c:s were
taxed eaually. Th e
o,-,!%- tax records requirec' were those limit3d
to total nu=er of
tar and', n-:cot;ne tax has c-ana-d all
=ac'.s sold. The ne,,-i 0 to 4 ccn-
t'.. ; .Salos records or. all brands, by ite:n
withi.-. brand, are now
r-nq-uirad to esta'--1-4sh t!ie %,roporticn cf
sales 4al-ling w'ithiin each tax
grc,-1-p (0,3, or 4~). As a result of the ne-a and
detailed record-keeping,
many problcms.'have cropped up at the jobber level
not the least of which,
is the considerable possibility for error. This,
in turn. 7,as led to
r,roblcms between City administrators and
cigarette jobbers regarding
the computation and payment of the tax.
Furthcr problcms will arise or. a bas--s since the
tax
r-tcs arc based on the of1ficial of tar and
nicot-,nc content (-.r4
CZ)
Fc-2cral T--n 10 Cc::~:--" nian-
d T!:csc cstimatcs; are upJaLcf1
CD
N)
O\
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.7 nd 4-t is p~:.ssij_-Ic if slot p-_-aI_ablc, for
a brand type
to switch from one tax group to another- in a
mattor of months. K c cp in, g
tr,~ck of and imolcmcntin= these changes has
provcd, and will continue
to prove, an additional complication to consumers,
retailars, jobbers
and City alike.
in additon, the fact znat certain cigarette
manufacturers noa cha::-z--
different prices -for "he same size cigarettes
furl-:-,ar ccmnlicates the
cigarette jobber's boo*,:k~-aping. This new
prizing tr=d mig'nt also n,.;_!I_-_fy
the intended imp,_act of' t-e tar and nicotine
tax.
VI. Effact of -.e tar and nico-line tax on
Since t*-c the t=:.:, Now Ycr'~` Citv re"-Z-41-ars
'-ave had
a StrUCt-,:rC. pricr to t*-e t _m:-:
to reorgan_4ZZ ent4r= nr4C-7
virtuall,, P_'! c;qarettas -cold by the pac", Were
carton prices lazgcly laithin size type. Wh-are a
P_-~ce
differential did was tased larceiv or. the lenc:t-
of: the
cicarette and, hence, %.-ES reaA,*l-.,
d4St,ng,,.:4S-'-le. he
t
-x incre;-aents, Prices of cigarattes differ
on!.,/ by hu.~-
also by tar and xl~-cotins content. Obviouslv, a
:D--Jce structure incor-
rating an additional d_':7.ension such as this is
not readily learned
by the person at the poi.-:t of sale, i.e., the
sale's clerk. The fact
that types within brands cften diff or as to tax-
and nicotine conten-1-
~ menLhol might differ frcm a "King" or a
soft-pack might diffcr from
~ box--and the fact thaL individual brand types
oftcn shift tax groups,
furthcr complicates any a--tempt to train rotail
sales personnel to
learn and a-.,plv the ta.*.:
f: these dif Eiz:ui tics. inhcr-2,riL in t.*-.c
tar c t
Because o
t!lc tl:: 11,1s failccc! in its Litcn0,_--c:
purpor;c--.;-nflucnc_,*:-.g br~=2 s~,Iocticn.
T!-,c problr:'Is -.-:ith nt_tc:~,..iLing to
bct-..,c-n the
U-4
CD
1-0
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N-)
0 N
r1 i
BATCO doCUMent for Province of BritiSh COIUMbia 29
October 1999