Internet taking state cigarette taxes

A discussion paper from the Stanford Institute for Economic Policy Research (SIEPR) examines the rise of cigarette sales on the Internet and the concominant loss of cigarette tax revenues by states. According to the paper, since 2002, 36 states have raised cigarette taxes to counter budget deficits. Although technically subject to state taxes, Internet sales are vitually tax free because tax collection is ineffective. The authors cite New York State's attempt to ban Internet cigarette merchants as its estimated loss of revenue from the Internet, "800 numbers," and Indian reservation sales is $500 to $600 million annually.

The SIEPR study finds:
...the increased sensitivity from cigarette smuggling over the Internet has lessened the revenue generating potential of recent cigarette tax increases substantially. Given the continuing growth of the Internet and of Internet cigarette merchants, the results imply serious problems for state revenue authorities.
Playing with Fire: Cigarettes, Taxes and Competition from the Internet, SIEPR Discussion Paper No. 07-02 (pdf, 43pp/404kB), September 2007

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Anonymous Anonymous said...

As long as gov is making money off cigarette sales, they will continue to be sold. What's the issue here? Cigarettes kill. They should be regulated out of existence. Maybe if they're not collecting taxes, states would be more prone to make them illegal.

Blogger Mack said...

Wow, great post. I just never would of thought of that. As a smoker because I don't buy my smokes online I guess I am paying for this. Hmm... wonder how much money I can save online.

Anonymous CarFix...Daily said...

From a buyer's point of view, even though I am a regular user of the internet I buy my cigarettes locally. Of course it could well be a case of perspective as my locality has discount tobacco shops where I can save money by buying generic brands.

The irony of any situation dealing with tobacco sales is that states are dependant on people smoking in order to keep tax dollars coming in. These same states that joined in lawsuits against the tobacco companies did not do so for health concerns but for the revenue the payoffs would generate. In order for these states to maintain tax revenues, they depend on people smoking. Perhaps it is best that states look for options to tobacco revenues instead of continuing to be hippocrits.

Anonymous Walter said...

The cigarette taxes are so high to begin with, why would anyone blame people for getting them online?

In my area, they are discussing raising the cigarette tax again, another .65

Why not tax lighters, matches, ashtrays... oops, I better stop, would hate to give anyone ideas.


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