The economic model in our 2008 analysis was used to estimate smuggling rates for 47 of the 50 states, producing annual averages from 1990 through 2006 and single-year estimates for 2006. At the time, 2006 was the last year for which complete data were available.

We broke the smuggling data into categories, reporting the amounts of “casual” and “commercial” smuggling. Casual smuggling involves cross-border shopping, typically by individuals for their own consumption. Commercial smuggling typically employs large trucks that travel greater distances than, say, an adjacent state to acquire cigarettes. We also provided estimates for smuggling imports from Mexico and smuggling exports to Canada.

Our previous study included detailed histories and analyses of Michigan, California and New Jersey. The Mackinac Center is a Michigan-based think tank, and we focused on New Jersey and California to underscore the degree to which cigarette taxes have led to similar problems in different parts of the country with long smuggling histories.[*]

In April 2009, we updated our original estimates to include the new federal excise cigarette tax rate,[†] which had just been raised by 61.66 cents per pack, from 39 cents to 100.66 cents, effective April 1.[1] Our revised estimates for 1990 through 2006 indicated that Michigan’s average annual total smuggling was 19.1 percent of the state’s total cigarette market. That is, 19.1 percent of all cigarettes, legal and illegal, consumed each year in Michigan were obtained by illicit means. The total smuggling rate for New Jersey during that same 17-year period was a more modest 15.0 percent, while California clocked in at 29.5 percent. One reason for California’s high rate was its shared border with Mexico, a significant source of contraband cigarettes.[‡], [2]

The three states’ estimated total smuggling rates generally grew from 1990 through 2006, with the rates in 2006 being higher than the average rates for the period. According to our 2009 calculations for 2006, 31.0 percent of all cigarettes consumed in Michigan were smuggled that year. In New Jersey, the figure was 38.4 percent, and in California, it was 34.6 percent (see Graphic 1). Remarkably, California did not have the highest smuggling import rates in the nation. This honor went to tiny Rhode Island at 43.2 percent. (Note that the rates in Graphic 1 are negative if the cigarettes are smuggled into the state and positive if they are smuggled out.)

Graphic 1: State Cigarette Smuggling as a Percentage of Total State Cigarette Consumption (Legal and Illegal), 2006 (Calculated in 2009)

State

Per-Adult Legal Sales in Packs

Estimated Smuggling Rates

Commercial Smuggling (Interstate)

Casual Smuggling (Interstate)

Smuggling Involving Canada/Mexico

Total

AL

83.30

-2.06%

1.48%

0.00%

-0.55%

AR

81.40

-4.73%

0.83%

0.00%

-3.86%

AZ

54.50

-7.17%

-7.37%

-12.10%

-32.11%

CA

32.90

-6.99%

-8.55%

-14.65%

-34.55%

CO

53.10

-7.58%

-8.26%

0.00%

-16.63%

CT

50.90

-19.99%

6.22%

0.00%

-12.34%

DE

183.60

-5.51%

64.24%

0.00%

61.52%

FL

71.90

-0.57%

-6.27%

0.00%

-6.88%

GA

68.20

-1.20%

1.44%

0.00%

0.26%

IA

85.30

-0.84%

-1.58%

0.00%

-2.44%

ID

58.80

-5.14%

9.44%

1.30%

5.99%

IL

51.50

-12.63%

-1.00%

0.00%

-13.75%

IN

98.70

-4.67%

14.84%

0.00%

10.83%

KS

55.40

-7.08%

-10.45%

0.00%

-18.44%

KY

145.30

0.00%

6.40%

0.00%

6.40%

LA

77.30

-0.94%

-5.40%

0.00%

-6.40%

MA

44.10

-21.82%

3.49%

0.00%

-17.54%

MD

48.90

-12.70%

2.06%

0.00%

-10.38%

ME

64.80

-25.16%

4.35%

2.21%

-16.59%

MI

56.50

-21.14%

-9.53%

1.85%

-31.02%

MN

55.60

-13.78%

-9.67%

1.43%

-23.59%

MO

105.10

2.30%

9.18%

0.00%

11.28%

MS

92.20

1.83%

-0.16%

0.00%

1.67%

MT

51.60

-14.72%

-14.76%

1.41%

-31.18%

ND

73.70

-2.04%

-1.84%

0.87%

-3.01%

NE

59.50

-4.84%

-6.75%

0.00%

-11.99%

NH

135.50

-8.02%

33.81%

1.33%

29.70%

NJ

37.70

-26.58%

-8.29%

0.00%

-38.42%

NM

35.40

-8.37%

-9.47%

-16.89%

-39.92%

NV

68.50

-8.98%

3.86%

0.00%

-4.78%

NY

32.40

-19.74%

-15.50%

2.03%

-35.81%

OH

70.50

-14.45%

1.16%

0.00%

-13.09%

OK

87.20

-10.90%

1.15%

0.00%

-9.60%

OR

54.70

-11.19%

-8.56%

0.00%

-21.14%

PA

62.40

-17.55%

3.93%

0.00%

-12.85%

RI

47.30

-15.69%

-19.08%

0.00%

-43.23%

SC

96.40

3.61%

4.70%

0.00%

8.13%

SD

69.20

-3.57%

-1.70%

0.00%

-5.34%

TN

98.70

1.47%

3.10%

0.00%

4.51%

TX

54.30

-1.54%

-2.04%

-10.66%

-14.75%

UT

34.50

-6.06%

-6.38%

0.00%

-12.89%

VA

78.90

0.00%

23.48%

0.00%

23.48%

VT

63.90

-14.17%

6.71%

1.69%

-4.54%

WA

33.70

-23.44%

-13.44%

2.04%

-38.18%

WI

71.30

-6.09%

-6.47%

0.00%

-13.10%

WV

112.20

-4.21%

12.07%

0.00%

8.38%

WY

78.80

-4.96%

5.26%

0.00%

0.57%

Notes: Estimates computed based on regression results. The smuggling percentage is negative when the state is a net importer of smuggled cigarettes, and the percentage is positive when the state is a net exporter of smuggled cigarettes. The sum of commercial, casual and Canada/Mexico smuggling does not equal the totals presented in the final column due to the nonlinear nature of the model. North Carolina, Hawaii and Alaska are not included.


[*] Michael D. LaFaive, Patrick Fleenor and Todd Nesbit, “Cigarette Taxes and Smuggling” (Mackinac Center for Public Policy, 2008), 22-65, http://www .mackinac.org/archives/2008/s2008-12.pdf (accessed Dec. 10, 2010). The other states’ data were added to our modeling effort not just to provide a broader picture of U.S. cigarette smuggling, but also to give the model itself greater variability — that is, changes to measure.

[†] In creating the new estimates, we included tax and sales data for the years 2007, 2008 and 2009. These new data produced adjustments in our estimates of long-term smuggling trends and hence in our our single-year estimates for 2006.

[‡] For more on international smuggling, see “The Rise of Foreign Suppliers” in LaFaive, Fleenor, and Nesbit, “Cigarette Taxes and Smuggling,” (Mackinac Center for Public Policy, 2008), 63, http://www.mackinac.org/archives/2008/s2008-12.pdf (accessed December 10, 2010).


[1] “Tobacco: Federal Excise Tax Increase and Related Provisions” (U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau) http://www.ttb.gov/main_pages/schip-summary.shtml (accessed Dec. 12, 2010).

[2] LaFaive, Fleenor and Nesbit, “Cigarette Taxes and Smuggling” (Mackinac Center for Public Policy, 2008), http://www .mackinac.org/ archives/2008/s2008-12.pdf (accessed Dec. 10, 2010).