Center for Tobacco Control Research and Education

Executive Summary

Raising the price of cigarettes is one of the most effective interventions to prevent and reduce cigarette use. Local, state, and federal governments can change the price of cigarettes by raising or lowering cigarette excise taxes and by implementing and enforcing minimum price laws. Smokers can also adjust their behavior by choosing discount or “bargain” brands, buying fewer cigarettes, and avoiding paying cigarette taxes by purchasing from retailers that do not levy all applicable state and local taxes, such as Indian reservations and Internet cigarette vendors.

Purchasing low price or untaxed cigarettes is common among smokers in New York. The most common source of cigarette tax avoidance in New York is purchasing from Indian reservations, especially in the western areas of the state. This behavior undermines the state’s efforts to prevent and reduce tobacco use. Cigarette tax avoidance not only reduces smokers’ incentives to quit smoking or reduce the amount they smoke, but it also results in a significant loss of state tax revenue that could be devoted to public health interventions aimed at reducing smoking. Lost revenue due to unpaid cigarette taxes also deprives the state of resources to address other public health issues.

This report examines smokers’ cigarette purchasing patterns with a focus on quantifying the extent of tax evasion in New York and identifying the characteristics of smokers who most frequently seek out and purchase low price and untaxed cigarettes. This report also examines the overall health and financial impacts of cigarette tax avoidance in New York by calculating the reduction in cessation and quantifying the amount of tax revenue lost due to tax avoidance via specific low price and untaxed sources. Specific findings include the following:

· Thirty-seven percent of New York smokers report purchasing cigarettes from low price (mainly untaxed) sources “all the time” or “sometimes.”

· Purchase of lower price cigarettes is associated with reduced intentions to quit smoking and fewer attempts to quit smoking.

· If all smokers paid the average retail price for cigarettes (including the excise tax), the current prevalence of smoking would be 2 to 3 percent lower, representing between 51,026 and 76,539 fewer adult smokers in New York.

· Revenue lost to the state as a result of purchasing low price (mainly untaxed) cigarettes is estimated to be between $436 million and $576 million in 2004.