On July 1, a new cigarette tax hike took effect in New York. But just three weeks after the state began levying the additional $1.60 per pack, the move is looking likely to prove a bust. Reports are flowing of more New Yorkers crossing the Empire State’s borders to purchase their smokes. Meanwhile, the state’s cigarette smuggling sting operations have been all but shut down, with the official responsible for overseeing such efforts having been axed just over a week ago.
Just one day after the hike went into effect, Massachusetts’ Berkshire Eagle reported that an Xtra Mart convenience store and gas station in Great Barrington was already seeing an uptick in purchases from bargain-hunting New Yorkers. According to the manager of the store, “a lot of people are coming from New York… We had to order a lot of cigarettes, more than usual, in anticipation of New Yorkers coming down.”
In Jersey City, convenience stores and gas stations have been benefiting from New Yorkers buying their smokes outside the state’s borders for years–and they expect to see more of that. Phil Hwang, who works at a gas station near the New Jersey end of the Holland Tunnel, was recently reported as saying “People from Manhattan will buy cigarettes here and they’ll buy a carton at a time.” He added that the last time New York hiked its cigarette tax, sales at his shop increased 20 to 30 percent.
In Pennsylvania, smoke shops were also anticipating a boost in customer numbers before the tax hike went into effect.
In Vermont, about a week ago, at least one store in Grand Isle was reporting a doubling of cigarette sales. For the price of one pack of cigarettes in New York, smokers can sometimes buy two packs there.
In towns near the Connecticut border, meanwhile, New York store owners were within days of the hike coming into effect predicting a loss of customers to shops across the border. Tony D’Onofrio, who owns a smoke shop in Rye, New York, told his local paper that the majority of his outraged customers pledging to quit would instead “travel to Connecticut.” Ramon Varjrs of Port Chester also commented that “Most people will go to Connecticut or New Jersey now, where for the price of one pack they can get two or three.”
Experts tracking the situation say they also expect to see more bulk purchases of cigarettes on Indian reservations. That opinion comes fresh on the heels of news that Thomas Stanton, an investigator who ran New York’s Tax Department’s enforcement division overseeing efforts to combat cigarette smuggling, has been fired after complaining about a budget freeze that would hamper undercover enforcement operations. Such enforcement operations have been key in enabling New York to collect high taxes that many smokers have sought to avoid paying for years.
That is a task that fiscal policy experts now say will be easier to accomplish, just as it will become more difficult for New York to close its budget deficit using additional revenue derived from the tax increase. Originally billed as capable of infusing something in the $300 million range, with which to fill the state’s budget hole, if smokers continue to respond to the hike by buying cigarettes in less heavily-taxed jurisdictions, the hike could fail to deliver–leaving the state still mired in red ink.
That is what occurred in New Jersey, after a tax increase was put through several years ago. That hike was expected to generate additional revenue, but when smokers decided to cross state lines to avoid paying the tax and buy smuggled cigarettes on which it was not taxed, collections actually fell by millions.
That may be one reason why New Jersey Gov. Chris Christie decided to forego a cigarette tax increase in his budget this year–logic that Gov. David Paterson seems not to have considered, generating much gratitude amongst New York’s neighbors as well as smugglers and bootleggers.