Wyoming has been ranked the surprising number one state in the country for cigarette smuggling as a study warns against increasing taxes.
Wyoming’s cigarette sales have the highest chance of landing in black or grey markets with 42 per cent of the state’s cigarette consumption going to smugglers taking product outside of the state, according to a recent study from the Tax Foundation.
The study consists of data drawn from 2022 and estimates comparing states’ tax data to US Census Bureau consumption surveys.
The director of excise tax policy at the Tax Foundation, Adam Hoffer, told Cowboy State Daily: ‘Wyoming is a relatively small consumer of cigarettes, compared to somewhere like California. So, small changes in consumption patterns can really swing that smuggling estimate.’
Hoffer said that the group’s analysts have been ‘a little intrigued by Wyoming for several years’.
The state’s high smuggling rate is also intensified by the nearness of more restrictive states, like Utah and Colorado.
Utah’s inbound 2022 inbound smuggling estimate is 20.46 per cent the report says, meaning around one-fifth of the cigarettes consumed in Utah were smuggling into it.
Colorado’s inbound smuggling rate similarly sits at 19.86 percent according to the report and taxes cigarettes at $1.94 per pack, compared to Utah’s $1.70 tax per pack.
The Tax Foundation noticed an increase in inbound smuggling in Colorado, plus an increase in outbound smuggling in Wyoming, after Colorado doubled its per-pack tax rate in 2021.
In 2020, when Colorado’s cigarette tax was 84 cents per pack, its inbound smuggling compromised 7.96 per cent of the state’s consumption.
At the time, Wyoming’s outbound smuggling was made up of 24.35 per cent of its own sales and the state did not show the highest percentage in that area as it does in the more recent study.
Wyoming considered nearly doubling its cigarette tax rate in 2022, but the House Revenue Committee shut down the effort in 2023.
Just after Wyoming, Delaware holds second place with 34.43 per cent of its cigarette consumption going to out-of-state smuggling and New Hampshire follows with 31.43 per cent.
Of the 15 states besides Wyoming that show outbound cigarette smuggling, five of them have a lower tax rate per-pack than Wyoming, though all of them have indicated less outbound smuggling, according to the study.
Missouri, for instance, at number seven had an outbound smuggling rate of 14.67 percent only taxes cigarettes at 17 cents per pack.
Hoffer also noted, however, that Missouri’s overall market is much larger than Wyoming’s so these figures don’t mean it doesn’t have a potentially large outbound smuggling volume.
‘[Missouri] borders so many states that is the hub of outbound cigarette smuggling for that region of the country,’ he said. ‘Probably [Missouri has] more net outbound smuggling that Wyoming, but it’s a smaller percentage of what’s consumed [here].’
New York ranked overall for the highest rate of inbound smuggling, according to the study, with an estimated 54.3 per cent of cigarettes consumed in the state coming from smuggled sources in 2022. The state taxes cigarettes at $4.35 per pack.
Closely followed by California, with 46.7 smuggled of total consumed, before New Mexico with 41.2 per cent and Massachusetts at 39.7 percent.
California taxes its cigarettes at $2.87, New Mexico at $2, and Massachusetts at $3.51.
From 2007 to 2022, New York is said to have experienced the largest net combined revenue loss of $21.1 billion followed by California with $12.7 billion.
The report also acknowledges other factors that may contribute to the smuggling, such as flavor bans like the menthol cigarette ban from June 2020 in Massachusetts.
In the following year, the state saw its sales drop by almost 24 per cent compared to the year prior to the ban.
‘This decline translates to $135 million less in cigarette tax revenue for Massachusetts,’ the study said.
States that experienced net inbound smuggling since 2022 have lost more than $5 billion of potential tax revenue, according to the study.
It further pointed out that states looking to increase tax rates should consider the ‘unintended consequences’ including the growth of criminal distribution and illicit trade.
‘In cigarette markets, consumers tend to shop across borders where the tax rates are lower and dealers develop black and gray markets to sell illegally to consumers, paying little or no tax at all,’ the study said.
‘Growing cigarette tax levels and differentials have made cigarette smuggling both a national problem and a lucrative criminal enterprise.’