Illegal Smokes Burn a Hole in Georgia Budget

Published January 1, 2008

The Georgia state government could be losing $20 million a year in cigarette tax revenue, according to experts who testified before a Georgia Senate committee on cigarette tax evasion.

Officials with the federal Bureau of Alcohol, Tobacco, Firearms, and Explosives, the state Department of Revenue, and other government and private organizations testified before the Senate Study Committee on Cigarette Tax Evasion on October 4.

The committee is studying how to fight cigarette tax evasion. Suggestions range from hiring more Department of Revenue investigators to buying digital tax stamp technology.

Rising Tax Burdens

Rising cigarette tax burdens and differences in burdens among states are major factors in the smuggling, experts said.

“Although Georgia’s $.37 per pack tax is among the lowest in the country, every neighboring state has an even lower tax,” said Committee Chairman Sen. David Shafer (R-Duluth) in a posting on his blog the following day. “South Carolina’s tax, at seven cents per pack, is the lowest in the nation. A tractor trailer of cigarettes bought in South Carolina is worth $60,000 more when it crosses the Georgia line.”

China Connection

Philip Awe, chief of alcohol and tobacco enforcement for the Bureau of Alcohol, Tobacco, Firearms, and Explosives, said the number of federal criminal convictions for large-scale cigarette smuggling rose from 18 in fiscal year 2002 to 108 last fiscal year.

Terrorist organizations are turning to cigarette smuggling to fund their operations, according to Awe, and the Chinese military is also involved. Awe said the Chinese military operates a dozen cigarette manufacturing plants and appears to be exporting counterfeit Marlboros and other high-end cigarettes with phony tax stamps.

He said California recently responded to the Chinese smuggling problem by making its tax stamps more difficult to counterfeit by adopting technology currently used with credit cards and bank notes.

Technology Cost Concerns

However, Bart Graham, Georgia’s Commissioner of Revenue, told committee members he does not want his department to have to pay for such technology.

Greg Martin, executive director of the Southern Association of Wholesale Distributors, a trade group of cigarette wholesalers, said the distributors likewise oppose being forced to pay for such technology.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News and a research fellow at The Heartland Institute.