Forget cookouts and Memorial Day sales at the mall; it’s excise taxes that have made summer stand out so far.
Cigarette smuggling, or “buttlegging,” is one of the more common instances of tax evasion via smuggling, but it is not the only form. Bootlegging, as evidenced by a recent event in Maryland, also still exists, even if it entails legitimate alcohol and not moonshine. Additionally, as more states consider excise taxes on e-cigarettes, there is a possibility that there will be a demand for smuggling those products.
On May 23, The United States District Court for the District of Maryland sentenced one aspiring racketeer to prison in a cigarette smuggling case. The defendant had evaded state tax laws by buying cigarettes in Maryland and selling them in Brooklyn without collecting the proper New York taxes. This scheme had resulted in a $2.5 million tax evasion.
However, the Baltimore area was apparently determined to keep excise taxes in the news. On May 24, the U.S. Attorney’s Office for the District of Maryland announced that a local liquor distribution company had been indicted for bootlegging. The company and its employees filled alcohol orders from New York retailers without the prerequisite registration with New York officials. They also did not pay state excise taxes, which are $7.44 per gallon of liquor.
Since New York has the highest state excise rates ($4.35 a pack with an additional New York City $1.50 tax), it is understandable that the rate makes tobacco trafficking desirable for both the customer and supplier.
None of this is news for many people in the policy world. For example, the Tax Foundation regularly tracks and ranks state cigarette tax rates and has found consistent correlations with smuggling rates. The disparity between states’ tax rates can make smuggling seem like a lucrative option. However, as these recent cases show, states want the traffickers to go out with a bang, not a whimper.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are liquor excise tax rates likely to foster the same relationship with trafficking that cigarette excise tax rates purportedly have?
With a free trial to Premier State Tax Library, practitioners have a single trusted resource that provides all of the tools and information they need to develop and implement the right tax strategies.
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