Sales Taxes and Cigarettes

Lately, there has been some attention on the city and state’s loss of sales tax revenue because of the use of a cash register called a zapper. Apparently, these zapper devices make the sale disappear, eliminating all traces of a tax being owed. Well, we know what really makes the sale disappear when it comes to cigarettes-and the buttlegging of non-taxed smokes zaps New York’s small stores as well as the municipal treasury.

If you don’t believe us all you need to do is cruise down any street in the city’s low income neighborhoods. There he will find tax cheating right out in the open as back packed hawkers sell their contraband cigarettes to all comers-with impunity. It seems that the city is too focused on finding minute violations for these struggling retailers-like having their underage sign in an “inconspicuous” location-than actually helping them combat illegal competition.

Last year, Fortune Magazine came out with an expose reporting that almost 61% of all cigarettes sold in New York are smuggled in from low tax states. The estimates vary, but the losses are pegged at around $2.6 billion. This makes New York the biggest importer of black market cigarettes in the entire country.


This buttlegging not only hurts tax collection, but it is a dagger in the heart of the city’s 13,000 bodega owners who rely on tobacco sales. Now if you are going to have the highest tobacco tax rate in the country, you should have accompanying mechanisms to insure that smuggling is curtailed.

What is the response of the city and state? Last year it was reported that the State Department of Taxation and Finance actually ran a sting operation against its own employees who were conducting undercover investigations of smuggling that “were highly effective” in battling the cigarette bootleggers.

Instead, the enforcement authorities at all levels of government devote most of their enforcement attention to the legitimate retailers who are unsuccessfully trying to compete against the smugglers; engaging in elaborate stings against underage and illegal sales that can cost store up to $2500 per violation.

Last year the zealots at the Department of Consumer Affairs issued 2,229 signage violations in 2013, a 70-fold increase from the previous year, that have cost the city’s mom and pop retailers millions of dollars. Meanwhile the illegal sales go on with no enforcement whatsoever.

The rampant smuggling also is really bad for our health. While retailers are being targeted for sales to minors, street hawkers are not stopping to proof anyone. It is high time we got our priorities straight.

$2.6 billion lost is not chump change and buttlegging hurts us all. The NY State Tax Department and NYC DCA need to make this an enforcement priority, and shift attention to where it rightfully belongs: the buttleggers.

We are still mired in an anemic recovery from the Great Recession. City retailers are seriously hurting, and part of their struggle can be attributed to government itself. The public sector is very good at making it more difficult for small business to succeed, with mandated sick leave, minimum wage hikes, health care requirements and, of course, thousands of costly regulations.

Instead of making them targets, how about giving them a helping hand instead?





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