November 08, 2005

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.

12 Comments:

At 2:05 PM, Anonymous click here to see tornado pics said...

I bet tax time on the gulf coast will be lots of fun!

 
At 2:53 PM, Blogger DelorumRex said...

ah ha ha ha ha! ry Michigan's tax per pack! And old Aunty Jen (Jennifer Granholm) has said that $5.00 per pack is not too high.. I am growing my own!

I want to see a tax on high BMI (Body Mass Index) the stats from the W.H.O. say that obesity and related disease cost just as much as cigarettes.. so why not?

Follow the money

 
At 3:26 PM, Blogger Heather said...

Cigarette counterfeiting? What is that? I've never heard of that!

If we could just have the Fair Tax approved, life would be a hell of a lot easier...

 
At 4:03 PM, Blogger Mbenzi said...

You think your taxes are high? Make room for me - I may come over! The Swedish tax per pack is abt USD 4.25, creating incredible tax revenues. It also puts all the government non smoking talk on the dump of hypocracy, especially since they are cutting down health care and other service stuff. So we are actually getting a lot of counterfeit cigs on the market, and a changing attitude to taxes from the public.

Absurd talk in the local store:
-"We've got good tasting Marlboros this week, Sir".
-"OK, but how can you sell them as cheap as USD 3 per pack?"
- "Because this week it's smuggle from Poland", the storekeeper said with a smile, putting my 20 packs in a transparent bag: - "Welcome back, Sir".

My government is desperate for revenues, increasing taxes and killing whatever business they can, thereby further increasing their need for revenues...

A vague memory: Back in the seventies you had one Prof. Arthur B. Laffer in Ca, providing the base theory for the Kemp-Roth bill. Should Professor Laffer still be alive and kicking - please send him over to us! I think I have a job for him...

 
At 5:21 PM, Blogger Kelly said...

If you want to talk taxes, look here. But seriously, congratulations on being a Blog of Note. I'm sitting in Individual Income Tax class right now, and, as usual, paying no attention whatsoever. I'm going to do poorly in this final.

 
At 5:57 PM, Anonymous Anonymous said...

Smuggling is always an issue of taxes here in Canada... especially on the native reserves that span the us/canada border. Our taxes are soooo high that it does seem to make it worth while for the smugglers... talk more at www.getmad.ca about the canadian smuggling issues...

 
At 6:45 PM, Blogger R2K said...

Ahh tax avoision... :)

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At 8:41 PM, Blogger James K Pfund said...

Apparently, there is an optimal rate of tax on cigarettes. That the State wants to raise cigarette taxes to discourage smoking is political rhetoric. Raising the taxes has obviously resulted in smokers' purchasing cigarettes where the tax rate is lower. Perhaps the State should lower the taxes to win back its domestic consmers and to draw consumers from other higher tax jursidictions. One last comment--if people are profiting from the black market in cigarettes, these same people would favor keeping cigarette taxes high or risk losing their business illegal as it may be.

 
At 5:37 PM, Blogger TheReverend said...

taxes shouldn't be paid

 
At 1:14 AM, Anonymous middle class guy said...

They should get a medal. Anyone who avoids ridiculous taxes like that should be priased and lauded. Especially any California tax law.

 
At 7:50 PM, Blogger The probligo said...

Keep on smoking them fags...

A short merry life and a hell of a death.

You're welcome!

 
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