NEW YORK (PIX11) — It’s estimated at least 60% of all cigarettes being sold in New York City are untaxed. That’s a huge chunk of change that not only the city and state are losing, but also everyday New Yorkers.
The revenue could be going to fund a variety of social programs.
Attorney David Schwartz is executive director of the New York Association of Wholesalers and Distributors, a nonprofit trade group that represents the stores that are selling cigarettes legally. Schwartz had buyers go undercover to highlight how prevalent the problem is. He provided PIX11 News with the hidden video footage and it shows the purchase of untaxed, illegal cigarettes and illegal flavored cigarettes in stores all over the city.
“This is incredibly widespread,” said Schwartz. “It’s gone from the trunk of cars or trucks on the streets to people bringing the cartons in from down south to brick-and-mortar stores in New York City and we want to protect brick-and-mortar businesses by evening the playing field. We want everyone abiding by the rules.”
The vendors in question are not getting their supplies in-state. Law enforcement experts say the cartons are brought in from other areas, such as Virginia, Georgia, North Carolina, where there is little to no tobacco tax. Some vendors are brazenly re-selling the packages or cartons with the tax stamps from those states.
Edgar Domenech, a retired law enforcement official, worked with the Bureau of Alcohol, Tobacco, Firearms and Exclusives. In 2011, when he was New York City’s sheriff, he established the illicit tobacco task force.
“I-95 is the corridor for guns coming in illegally into New York City, tobacco is taking that same corridor,” said Domenech. “New York City is considered the number one illicit city for tobacco in the country.”
The transport and sale of illegal cigarettes is a huge money maker. New York State has the highest tobacco tax of any country in the nation. For every pack of cigarettes, $4.35 is state tax, $1.50 city tax.
Depending on the brand, a legal pack costs anywhere from $13 to $15. The hidden camera footage shows the illegal sellers have them marked down to no more than $10 a pack. The stores selling them legally are at a disadvantage.
“They’re taking such a hit,” said Schwartz. “I speak to stores all the time. They should be selling 50 cartons a week, they’re selling six cartons a week.”
“New York City is losing in excess of anywhere from $120 to $180 million of loss revenue due to untaxed cigarettes in New York City per year,” Domenech said.
For the state as a whole, the figure is even more dire, the lost revenue is well over $2 billion a year., according to Domenech. The shops selling legal packs are losing out and the city and state are losing out on tax dollars. But it’s also a detriment to residents of New York. The lost tax revenue could go to funding any number of social, health and safety programs.
“You have an unlicensed store across the street,” said Schwartz. “They’re selling untaxed cigarettes for $10 and nobody is doing anything about it.”
Domenech said the pandemic hampered enforcement. Much of the manpower was devoted to ensuring COVID-19 mandates were followed. While the penalties range from fines to loss of a license to prison time, Domenech says there’s not much appetite for prosecution. Additionally, many of those caught will just pay a fine, because the money they make from the illegal sales are likely far more.
“I think part of the problem is that the issue of illicit tobacco activity, some view it as a victimless crime,” said Domenech. “I take the position this is not a victimless crime, that these are organized crime groups that are basically benefitting because there is no fear of being arrested and or charged with a felony.”
The nonprofit Association of Wholesalers and Distributors have sent the results of their investigation and hidden camera footage to the New York State Department of Taxation and Finance, which oversees enforcement. PIX11 News has reached out numerous times to the Department for a statement or to see if they are pursuing their own investigation. They have yet to respond to our inquiries.