Connecticut is stepping up the fight against the trafficking of bootlegged cigarettes from low-tax states into lucrative Northeast markets through New York and Boston ports and along Interstate 95.
The state Department of Revenue Services has established a tobacco enforcement unit and is looking to work more closely with New York and other neighboring states to halt deliveries at ports, highways and online.
Continue Reading Below
"Periodically, we'd bust somebody for sales out of a store, but we're equally confident that we really weren't doing what other states like New York, Massachusetts and Rhode Island were doing in terms of actually interdicting the product before it ever got into anybody's hands, before it got loaded out of a truck, before it got sold out of a back of a van," Revenue Commissioner Kevin Sullivan said.
The enforcement unit is increasing its staff from 1 ½ positions to six, which will be four special agents, a forensic fraud examiner and a revenue examiner. Agents will work more closely with neighboring states, particularly in an I-95 working group to share law enforcement information, said Patrick Bernardo, a former U.S. Postal Service Inspection Service official hired in November as program manager at the tax department's enforcement unit.
"It's not just running out and doing inspections," Bernardo said.
Connecticut wants to stem an annual tax loss of nearly $60 million from cigarette bootlegging, he said. The loss represents more than 16 percent of the $364.3 million in cigarette tax last year. Total revenue was down 5 percent from the previous year.
Money from illegal cigarette sales also is used to fund terrorism, officials say.
Steadily rising state taxes to advance public health by putting cigarettes beyond the reach of consumers, particularly youngsters, have had the unintended consequence of making cigarettes a lure to bootleggers. The significant differences in taxes among states, primarily in the Northeast and the South, have created incentives for black market sales, according to the Tax Foundation, a tax policy research organization.
"You can do a lot on enforcement to try and keep the smuggling problem from happening, but it looks an awful lot like Prohibition in the 1920s," said Scott W. Drenkard, an economist and manager of state projects at the Tax Foundation. "Black markets are going to spring up to meet that demand."
At $3.40 a pack, Connecticut had the fourth-highest cigarette taxes in the nation last year, according to the Tax Foundation. It was No. 11 among the states in smuggled cigarettes in 2013, according to the Tax Foundation.
Connecticut also is wedged between two top targets of smugglers: New York was No. 1 in the nation in smuggled cigarettes, and Rhode Island was fifth, according to the Tax Foundation.
A strike force established in New York state last year to crack down on illegal cigarettes focuses on blocking contraband cigarettes and tracking to the source money used to pay for illegal cigarettes, the Department of Taxation and Finance said. The group works with law enforcement agencies in cities and counties and federal law enforcement agencies such as the Drug Enforcement Agency and Department of Homeland Security.
"The trafficking in untaxed cigarettes has become a very attractive crime, more so than ever," Sullivan said. "If you take $2 or $3 or $4 off the top of a pack of cigarettes, that's a pretty good deal."
Follow Stephen Singer on Twitter at https://twitter.com/SteveSinger10