Cigarette Tax Avoidance in California

From the Sacramento Bee:

A father and daughter whose Rancho Cordova wholesale business illegally evaded payment of $265,000 in tobacco taxes will be sentenced Dec. 1 after the pair pleaded no contest to felony charges, the Board of Equalization said Friday.

But their lawyer asserts that it's all California's fault for having such high cigarette taxes:

"This is what you get when you make tobacco taxes 60 percent," Galgani said. "You create an incredible temptation for people to commit fraud to keep their business afloat. You can turn very decent people into criminals."

87 cents a pack is, in fact, on the high side compared to most other states. And the state's tax base has been hit pretty hard by tax avoidance of this type. The Bee article cites an estimate from the state Board of Equalization (BOE) that while they collect $1 billion a year from the cig tax, they lose $300 million more to black-market sales.

Which brings us back to the father-daughter team being sentenced here. At 87 cents a pack, how many packs of cigarettes would they have to smuggle to avoid $265,000 in tax? 300,000 packs, according to my dummy calculation. Seems like something more than a cottage industry.

If California was levying an 87-cent cig tax just to prevent smoking, this would hardly be worth mentioning. But, of course, most of California's cig tax revenue is supposed to be funding health care for kids, thanks to a ballot initiative pushed through by Meathead in 1998. And if the real outcome is neither revenue raising nor reduced smoking rates, but a rise in cigarette counterfeiting, as the BOE seems to think, it's hard to see who wins from this.