Smokers may seek way around tax hike

Associated Press

SEATTLE — Voters’ decision to boost Washington state’s tobacco tax could worsen the state’s existing problem with cigarette smuggling.

State officials estimate nearly one out of three cigarettes sold here isn’t taxed.

And that was before the passage earlier this month of Initiative 773, which will add another 60 cents in taxes on each pack of cigarettes beginning Jan. 1.

State revenue forecasters say they took the illicit market into account when they originally projected the initiative would generate $130 million a year. The initiative dedicates most of the money to improving health care for low-income people. The revenue estimate has since been decreased by about $12 million.

With its new $1.425-per-pack tax, Washington will become the most expensive state in the nation in which to be a taxpaying smoker. The initiative is also expected to increase the price of other tobacco products, such as cigars, by about 30 percent.

For a pack-a-day smoker, 60 cents a pack works out to $18 a month or $219 a year. That’s an incentive to cheat.

"If I were a betting man," said Department of Revenue spokesman Mike Gowrylow, "I’d bet that the level of evasion will increase."

Mark Smith, a spokesman for tobacco company Brown &Williamson, which opposed the measure, puts it more bluntly: "All hell is going to break loose."

Aside from buying smuggled cigarettes, there are easy, mostly risk-free ways to avoid the tax:

  • Traveling to neighboring Idaho, which charges 28 cents in taxes per pack, or Oregon, where the tax is 68 cents and there’s no sales tax.

  • Patronizing one of the many tribal smokeshops that do a thriving business in tax-free cigarettes, even to non-tribal members who aren’t legally eligible for the discount.

  • Surfing the Web, where online vendors sell cigarettes and other tobacco products, sometimes with a promise to hide the transaction from state revenue officials.

    State officials expect smokers to use all three of those methods and more.

    "You can’t become the highest-taxed state in the nation and not be in for a helluva ride," said Carter Mitchell, who heads the tobacco-enforcement program for the State Liquor Control Board.

    Mitchell expects the new law to pressure the 14 agents and $1.3 million budget dedicated to tobacco-tax enforcement.

    Mitchell’s crew took over tobacco tax enforcement from the Department of Revenue in 1997.

    Since then, it has recouped about $1.3 million in lost taxes, only a fraction of a percent of hundreds of millions lost. In the last fiscal year alone, the loss was estimated at $107 million.

    Although buying tax-free tobacco products online or at tribal shops technically carries a $5,000 fine and a year in jail, the state seldom hassles smokers.

    Meanwhile, cracking down on online vendors has produced limited success, even though federal law requires them to disclose details about interstate transactions, Gowrylow said.

    If the experience of other states is any measure, Washington could see hijackings of tobacco-laden trucks and an increase in convenience-store holdups, said Mitchell of the Liquor Control Board.

    Contraband cigarettes are easily sold and difficult to trace, while criminal penalties are relatively light.

    In the state’s latest large bust, nearly a year ago in Ellensburg, agents seized 4,093 cartons of untaxed cigarettes with a wholesale value of $85,000 and $33,767.25 in evaded taxes.

    Two tribal members pleaded guilty and received 30-day jail sentences that were mostly converted to community-service hours.

    Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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