How Will Massachusetts Combat Black Market Tobacco Sales?
Saturday, February 08, 2014
The state's Illegal Tobacco Commission expects to issue final recommendations March 1 to tamp down on trafficking.
“People know it's a growing problem,” said Massachusetts Department of Revenue spokesperson Ann C. Dufresne. That department's commissioner, Amy Pitter, estimates that anywhere between 8 to 27 percent of cigarettes statewide are smuggled, resulting in an loss of revenue from $60 to $250 million annually.
Smuggling covers a range of activities from smokers shopping over state lines to organized crime rings. The black market is fueled in large part by dramatically different state-by-state tax rates. Last summer, Massachusetts increased its tax to $3.51 a pack — the second-highest rate in the nation. Spending a little extra on gas, a smoker can head to New Hampshire and pay half the tax ($1.78).
Response may include task force, stiffer fines and penalties
Stephen Ryan, the executive director of the New England Convenience Store Association, said serving on the commission had been an educational process. “The illegal trade certainly hurts the legitimate trade among retailers,” Ryan said.
“We're certainly looking at ways of leveling the playing field.”
Among the proposals the commission is considering: funding for a tobacco task force and increasing enforcement resources, an expansion of the state's stamping program to other tobacco products, and expanding data-gathering abilities to track tobacco throughout the supply chain.
Additional steps include increasing fines and penalties for violating state tobacco statutes, simplifying minimum tobacco pricing requirements so the laws are easier to follow, and changes to distributors' licensing requirements.
The commission is also looking at requiring the immediate license suspension and potential revocation for any person working in the supply chain caught selling or possession illegal tobacco or counterfeit stamps, and requiring the suspension of a retailer's lottery license in conjunction with any violation.
“We think having consequences that are substantial makes sense,” Ryan said. “Conceptually we're not against (stronger penalties).”
At its last meeting, Dufrense said the proposals were discussed and prioritized, “so the commission is now drilling down to its recommendations” heading into two final meetings later this month. With the issue receiving more attention from the public, lawmakers, and the executive branch, Dufresne said everyone was awaiting the final report.
Members of the state's working group include legislative and state appointees, a State Police representative, and the heads of two regional wholesale and convenience store associations.
More evidence of smuggling rings, smokers avoiding cigarette taxes
The latest corroborating evidence of widespread contraband tobacco in the Bay State comes from a “litter study” conducted by researchers from North Carolina's RTI International, who collected a random sample of littered cigarette packs in five U.S. cities last summer. Their analysis determined nearly 60 percent of the discarded packs didn't have the proper local tax stamp, including nearly 40 percent in Boston.
Those researchers estimated that the five cities (which also included New York City, Philadelphia, Washington, D.C., and Providence, R.I.) were losing out on a combined $680 to $729 million in cigarette tax revenue through trafficking.
The study follows recent research by the Michigan-based Mackinac Center for Public Policy that estimates one in five cigarettes in Massachusetts is smuggled into the state, avoiding its excise tax.
The reasons for smuggling are easily understood: Cigarettes are small, legal to manufacture, and low risk to traffic.
Jeff Cohen, an attorney for the Bureau of Alcohol, Tobacco, Firearms and Explosives, told commission members earlier this month that cigarettes were potentially the largest trafficking operation worldwide involving a legal commodity. An estimated $100 billion is lost each year as a result, he said.
Examples of rings cited by Cohen before the commission included a $400 million-a-year online operation that mailed untaxed cigarettes from Europe, and a Hezbollah terrorist cell that trafficked cigarettes between North Carolina and Michigan.
A new Marlboro man
That latter operation involved cell members purchasing 299 cartons of cigarettes at a time (the legal limit without filing paperwork) and transporting between 800 and 1,500 cartons per trip.
But one of the most prominent international examples of tobacco smuggling by an identified terrorist group involves Algerian warlord Mokhtar Belmokhtar, whose moniker became “Mr. Marlboro” because of the role smuggling plays in funding his previously Al-Qaeda-aligned group. (Last year, the Associated Press reported a letter sent to Belmokhtar from Al-Qaeda's North African branch leaders that broke off ties for reasons including not picking up the phone or returning expense reports.)
Some doubt and unintended consequence to the sin tax
While higher so-called “sin taxes” on cigarettes in the U.S. are recognized and generally supported as an effective way to decrease consumption, a 2007 study by Michael Lovenheim at Stanford University's Stanford Institute for Economic Policy Research found that when smokers travel across state lines to purchase cigarettes (“casual smuggling”), they stock up — and end up smoking more.
Ryan said the state's commission was primarily focused on organized trafficking.
Responding to GoLocal on the issue of cigarette smuggling previously, the vice-president of communications for the Campaign for Tobacco-Free Kids said tobacco tax increases remained one of the most effective ways to reduce smoking.
“The best solution to the problem of interstate cigarette smuggling is for low-tax states (such as New Hampshire) to increase their cigarette taxes,” according to the campaign's Vince Willmore. “Such action would deliver significant health benefits to these states, while benefiting all states by reducing smuggling and tax evasion.”
Related Slideshow: 10 Historically Bold Moves Made By Big Companies
10. RJ Reynolds
The Smokeless Cigarette
In 1988, long after the American public wised up to the dangers of cigarettes, RJ Reynolds launched the Premier cigarette. They called it a “smokeless nicotine delivery mechanism that looks and feels like a premium cigarette.” It didn't. Smokers said it tasted like charcoal, and drug users quickly figured out how to use it to smoke crack. It has been reported that RJ Reynolds lost $1 billion on the product.
The alleged lobster roll – no one's sure there was ever any real lobster in there – from McDonald's was about as successful in New England as their McCrabcake was in Maryland. It looked bad, tasted worse, and was shunned by even the most die hard Golden Arches fans. (Unlike the McRib, which continues to have a bewildering trance on McDonald's fans.) The sandwich is still available in some Canadian franchises and occasionally in Maine.
Bans Employees From Working at Home
When Yahoo CEO Marissa Mayer became the company’s chief executive, she instated Google-like food options, offered new benefits, and insisted full-time employees work in the office. The tech world was shocked, and Mayer admitted the mandate could diminish productivity. However, she saw an up side.
Sony was right to support Blu-ray over the failed HD DVD, probably because they learned their lesson with the Betamax experience in 1975. That's the year the Betamax video recorder hit stores shelves. A year later, the VHS format hit the market. Sony never licensed its Betamax technology, and the two formats were not compatible. Consumers had to choose between the two. You know how that story ended.
Enters the Auto Market with High End Electric
Fires Steve Jobs
One of the world's most famous college drop outs, Steve Jobs founded Apple, helped it grow into a billion-plus public company, and launched the Macintosh. He was also ousted by Apple's Board of Directors in 1985. The popular take is that the board was stupid to fire Jobs as the leader of the Mac division, because Apple would have more quickly become the company it is today. A new take on the decision posits that the then-30-year old Jobs was disruptive and incompetent in that role. After 12 years away from the company he founded, he learned the skills and discipline required for Apple's rebirth.
Takes on Sony + Nintendo in the Console Gaming Market
Microsoft has one person to thank for its console gaming success, and that person isn't even real. Master Chief is the hero of the insanely popular "Halo" franchise, which was first released was a launch title with the original Xbox. The game revolutionized First Person Shooters on consoles, and sold millions of consoles along the way. At the time, Microsoft was known as primarily a software company. They may have took a bath on those early consoles, but they now join Sony as one of the two major console makers left standing. (Sorry, Nintendo. The Wii U is going to sink you.)
Changes Pricing Plan
Netflix is back on top now, but it almost went under in 2011 when it mishandled its pricing changes and attempted to slice off it DVD business under the name Qwikster. As they did with the New Coke launch, customers responded with immediate anger, leading Netflix CEO Reed Hastings to apologize. The company reverted to its $7.99 streaming plan and has never looked back.
Opts out of Government Loans
After Detroit’s automakers went to Washington in 2008 asking for emergency loans to keep their enterprises afloat, the big bus oval was the only one to opt out of the bailout. Ford decided to mortgage all of its assets to raise operating funds instead. Taxpayers eventually spent $80 billion to rescue General Motors Corp. and Chrysler Corp. Ford focused on efficiency and increasing sales without using government bailout money - thus avoiding the federal tinkering that Chrysler and GM had to accept as a part of their deals. The company has since kept pace with GM, the country's largest automaker.
Perhaps the most famous brand misstep since Ford's Edsel, New Coke is the Titanic of corporate miscalculation. In the 1970s and early 80s, the soft drink giant faced increased competition from Pepsi and other products. To stay on top, Coke executives stopped production of the classic formula and introduced New Coke with tremendous fanfare. The public's responded with immediate outrage. Coca-Cola re-launched its original formula – called Coc-Cola Classic – almost immediately. Today, unopened cans of New Coke go for hundreds on eBay.
- Can MA Regulate Marijuana When it Can’t Regulate Tobacco?
- NEW: MA Medical Society Applauds CVS for Terminating Tobacco Sales
- The New England States That Smuggle The Most Tobacco
- MA Cigarette Tax Hike Could Boost Illicit Sales
- MA Medical Society Urges Stricter Regulation of E-Cigarettes
- Massachusetts Cigarette Tax Top 10 In US–Ranking
- NEW: Mass Medical Society Policy Opposes Youth Use of E-Cigarettes
- LEGAL MATTERS: A Written Apology From Big Tobacco