The underground tobacco market in New York has spread in the wake of tax hikes that make the state's cigarettes the most expensive in the US -- and costs it tens of millions a month in lost tax revenue, the New York Post reported Friday.

Illegal cigarettes were pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China, authorities said.

Government data showed that New York state was being smoked out of as much as $20 million a month by illegal cigarette purchases -- an estimated 7.3 million packs a month sold off the state tax radar.

"It's an unfortunate side effect of the taxes, creating this black market," said Ron Turk, special agent in charge of the Bureau of Alcohol, Tobacco and Firearms' New York field office.

Sales of taxed cigarettes plummeted 27 percent since July, when state lawmakers raised the excise tax to $4.35 a pack on top of the city's tax of $1.50, making the average price of Marlboros in New York $11.60, with some shops charging as much as $14.

About 30 million packs are being sold legally each month -- down from 41 million packs a month before July.

The New York Association of Convenience Store Owners estimates as many as half of all cigarettes consumed in the state lack proper tax stamps.

And law enforcement was also worried that the easy cash will spark rivalries among criminal gangs -- just like drugs have.

"We see lots of [rip-offs] and violence with drug trafficking, and you will see a rise of that in tobacco, too. As volume and money go up, the stakes get higher. And certainly, a concern of ours is violence will spill out of this," Turk said.

Still, New York state officials maintain the tax is worth it as an incentive for people to quit -- and the higher tariff makes up for the bootleg losses. Cigarette taxes brought the state $139 million in October of this year compared with $108 million in October 2009.

Read more: