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STUDY: South Dakotans Smoking More Smuggled Smokes

(NPN) — Over 25 percent of all cigarettes smoked in South Dakota in 2012 were smuggled into the state and are untaxed by South Dakota, according to a study released by the Tax Foundation Wednesday.

Citing results from a Michigan think tank study, the Tax Foundation noted that 26 percent of all cigarettes smoked in South Dakota were smuggled. This rate also put South Dakota in the top quarter of states in the country. The group also noted that South Dakota shot up 17 spots from 2006, when the state only had a 5.3 percent smuggled cigarettes rate.

One possible cause of increased smuggling based on the data are that South Dakota’s cigarette tax rate nearly doubled—a 189 percent increase–between 2006 and 2012

Meanwhile, Wyoming and North Dakota had among the lowest rates of smuggled cigarettes crossing their borders. The Tax Foundation found both to be net exporters of cigarettes smuggled into other states. Wyoming had a -22.3 percent rate and North Dakota -2.5 percent.

The Tax Foundation notes that large differentials in cigarette taxes across states can create incentives for black market sales.

“Public policies often have unintended consequences that outweigh benefits,” the report noted. “One consequence of high state cigarette rates has been increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states.”

In South Dakota’s case, its cigarette tax in 2012 was not much different from some of its neighbors. Cigarette tax rates for Northern Plains states: South Dakota, $1.53/pack; Montana, $1.70/pack; Minnesota, $1.60/pack, Iowa, $1.35/pack. However, other neighboring states had considerably lower rates: Nebraska, $0.64/pack, Wyoming $0.60/pack and North Dakota, $0.44/pack.

The report did not indicate specifically where the untaxed cigarettes were coming from that were entering South Dakota. However, the report did indicate that generally, smuggled cigarettes flow from low tax to high tax states.

New York had the highest smuggled cigarette rate at 56.9 percent of all cigarettes consumed. It also has the highest tax in the nation at $4.35/pack.

NPN graphic by Todd Epp, used with permission.

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