2009-04-10 / Top Stories

Weiner Says NYC Losing $150 Million A Year To Online Cig Sales

With the federal government raising new taxes on cigarettes, a new study shows that internet tobacco sales are cutting a deep hole into the city's tax revenue.

Representative Anthony D. Weiner a member of the House Judiciary Committee, and State Senator Jeff Klein, released a new report showing that New York City is losing up to $150 million in revenue from untaxed cigarettes purchased over the Internet. Weiner announced Congress will soon consider legislation to ban the mailing of cigarettes - effectively shutting down these websites.

When purchasing cigarettes in a retail store, consumers pay $2.75 per pack for the State excise tax and $1.50 per pack for the City excise tax. There is also an 8.375 percent sales tax that the consumer pays on the entire sale price. So a carton of cigarettes includes a combined $4.25 City and State tax plus sales tax. Smokers buying cigarettes online are still required to pay these City, State and sales taxes, but cigarette sites almost never report the sales to state and local governments.

This week the federal cigarette excise tax was increased from 39 cents to $1.01 to help fund an expansion of the State Children's Health Insurance Program. The average price per pack in New York City will now approach $10. While the higher cigarette taxes will help curb the deadly consequences of smoking, an unfortunate consequence of increased cigarette taxes is greater incentives for black market sites.

Highlights of New Online Cigarette Sales Analysis

With city smokers representing between 10 percent and 20 percent of the state's online cigarette purchasers, the city is losing between $50 million and $150 million in taxes each year.

According to this analysis, New York State loses between $370 million and $500 million a year in tax revenue from cigarette sales via online cigarette sales.

The average cost of a carton of Marlboro cigarettes on the Internet is $41.76. The average cost of a carton in New York City with all taxes and fees is approximately $95.

The City loses out on an average $18.50 per carton in untaxed cigarettes sold over the internet. The average annual tax revenue lost is as much as $148 per New York City smoker.

Of the more than 2.7 million smokers statewide, an estimated one million, or 28 percent, live in the city.

According to data from the New York State Department of Tax and Finance and a recent report from the New York Association of Convenience Stores, Native Americans in New York State sell approximately 30 and 40 million cartons of cigarettes. Additionally, based on market data, New York State tribes represent approximately 90 percent of sales over the Internet.

Due to the highest cigarette excise tax in the nation of $42.50 per carton, industry experts suggest that New York City consumers represent between 10 percent to 20 percent of the sales online.

As a result, Rep. Weiner's office estimated that 3 million to 8 million cartons of cigarettes are purchased online by New York City residents.

This translates into $50 - $150 million annually in revenue lost by New York City from cigarettes sold over the Internet. Congress will soon consider Weiner's Prevent All Cigarette Trafficking Act, which makes it a felony for selling tobacco in violation of any state tax law and effectively ends Internet tobacco smuggling by requiring the United States Postal Service to stop shipping cigarettes. FedEx, UPS, and DHL have already agreed not to mail tobacco. Senator Klein said, "The sale of cigarettes over the Internet with no restrictions and without collecting taxes jeopardizes the health and welfare of our children and robs our state blind."

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