RACINE — Tim Clark, owner of Cigarette Outlet, sells about 160 cartons a week from his Racine store but only about 40 from his Kenosha store, Tobacco Barn.
He thinks he knows why: Cheaper smokes are available just over the Illinois border. Eight to 10 dollars a carton cheaper.
Also, there’s a cigarette shop just a few miles over the border on Highway 31. “If you get two or three cartons at a time, it’s worth the drive,” Clark admitted.
The flow of cigarettes from lower-tax states to higher-tax states is widely acknowledged. For example, in 2009 the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives issued a report on its efforts to prevent the “diversion” of tobacco across state lines.
“In the United States, federal and state governments estimate that tobacco diversion costs over $5 billion in revenue from unpaid excise taxes annually,” ATF stated then.
The Bureau also wrote, “ATF has not developed an adequate national program for diversion, and its diversion enforcement efforts are ad hoc.”
By all indications, cigarette diversion, or what some would call smuggling, tends to be heaviest where the greatest disparities exist in state excise taxes.
The Mackinac Center for Public Policy, a think tank in Midland, Mich., studied the issue and ranked Wisconsin No. 5 in the nation in state-to-state cigarette movement. If true, it’s not hard to see why. Wisconsin’s state excise tax on cigarettes is $2.52 per pack. In contrast, Illinois’ excise tax on cigarettes is $1.98 cents a pack. Minnesota’s was $1.23 but increased to $2.83 on Jan. 1.
In 2006, when Wisconsin’s excise tax was 77 cents, Mackinac ranked this state No. 13 nationally in influx of out-of-state cigarettes.
Clark, whose Racine store is at 5108 Washington Ave., said about the disparity between Wisconsin’s and Illinois’ excise taxes, “Yeah, Illinois hurts us — especially the Kenosha store.”
It’s not just individual smokers who cross the border to buy cigarettes; some less-than-honest retailers have been caught selling smuggled smokes.
“We’ve done stings of convenience stores and gas stations where we catch them scratching off the Illinois tax stamp,” said Racine police spokeswoman Sgt. Jessie Metoyer.
In October, agents from the Wisconsin Department of Revenue’s Alcohol and Tobacco Enforcement division and Racine police raided 14 local convenience stores. The inspections focused particularly on confiscating alcohol and tobacco that may have been bought out of state for a lower price and brought to Racine to avoid Wisconsin’s higher taxes on those products.
Targeting stores suspected of selling untaxed alcohol and tobacco products and other illegal sales, police and agents confiscated thousands of cigars, hundreds of tobacco products and hundreds of bottles of alcohol. They issued 12 citations to seven stores.
“(Smuggling) ruins it for the people who are trying to be legit,” Clark commented. “... It does hurt businesses along the state line, real bad.”
Correction: The original story contained outdated information about the Illinois and Minnesota excise taxes. The figures have been corrected.