Getting a cheap smoke

Tobacco: Retailers, law enforcement officers say higher tax has sent some residents out of state for cigarettes and led to smuggling.

October 03, 1999|By Greg Garland | Greg Garland,SUN STAFF

A basement storage room at the Maryland Comptroller's Office is rapidly filling with hundreds of cartons of cigarettes confiscated from smugglers -- a haul worth tens of thousands of dollars on the black market.

Enforcement agents have lined up more storage space. They figure they are going to need it as they target bootleggers hoping to cash in on the cigarette tax increase that took effect in Maryland July 1.

"I really think as time goes by this situation is going to get worse," said Larry W. Tolliver, director of the comptroller's field enforcement division. "I think it's going to be a very huge problem in Maryland."

Anti-smoking activists played down the problems, but there are signs that the 30-cents-a-pack tax increase -- while prompting some Marylanders to kick the habit and discouraging others from starting it -- has had other consequences.

They include smugglers looking to make a quick and easy buck, as well as Maryland smokers crossing the state's borders to buy cigarettes at the lower prices in neighboring states.

The price difference can be substantial. A carton of Marlboros that retails for $29.62 at one of the cheaper discount tobacco stores in Maryland sells for $22.99 at a similar outlet in Virginia.

Maryland's tax of 66 cents a pack is among the highest in the mid-Atlantic region, behind New Jersey's 80 cents and New York City's 78 cents. States immediately bordering Maryland all levy substantially lower taxes.

Virginia's cigarette tax is the nation's lowest at 2.5 cents, although some counties and cities there impose piggyback taxes that add as much as 35 cents. The tax is 17 cents in West Virginia, 24 cents in Delaware and 31 cents in Pennsylvania. Washington taxes cigarettes at 65 cents a pack.

Maryland's tax increase has meant more business for cigarette sellers in neighboring states, such as the 14-store Discount Cigarette chain in Virginia. The company's managers say the stores are strategically located to cash in on price differences among communities in Virginia, as well as with Washington and Maryland.

"We actually had almost an immediate increase in sales after July 1," said William T. White III, regional director of the chain's owner, Potomac Retail Enterprises Inc. He estimated sales rose about 10 percent, at least partly because of purchases by Marylanders after the higher tax kicked in.

"I do know that we're receiving quite a lot more phone calls from Maryland asking for the location of our stores and for directions," White said.

On the Maryland side of the line, border merchants say they are feeling the pinch as their cigarette sales -- which may account for nearly 30 percent of a small convenience store's business -- plummet.

"We predicted the sales would decline at any border store, and that's what we're seeing," said F. Peter Horrigan, president of the Mid-Atlantic Petroleum Dealers Association. "Sales have just shifted to other states, and it's hurt the small businessman in Maryland."

Lock Wills, who owns a chain of 40 Dash In convenience stores in Southern Maryland and on the Eastern Shore, said Virginia and Delaware retailers promote their cheaper prices with billboard advertising.

"If you go into the parking lots [across the line] and look at the tags of the vehicles, you'll see a lot of Maryland plates," said Wills.

Glenn E. Schneider, community organizer for Smoke Free Maryland, said cross-border sales are more a nuisance than major problem. Most cigarettes are bought by the pack and few smokers will drive out of their way to get them, he said.

Such problems are far outweighed by the benefits of a tax increase, Schneider said. He pointed to studies which show that every 10 percent increase in price leads to a 4 percent drop in cigarette consumption overall and a 7 percent decline among teens.

"We know that whenever you increase tobacco taxes, you reduce consumption, save lives and increase revenue for the state," Schneider said. "No one, including the industry, can dispute that."

Experts say the tax increase is too recent to determine the extent to which sales may have shifted from Maryland to neighboring states, as opposed to sales dropping because fewer people are smoking.

Maryland officials say they are less concerned with people crossing the state's borders to buy cigarettes for their personal consumption than with stamping out larger-scale smuggling by profiteers.

"We're aggressively going after smugglers," said Comptroller William Donald Schaefer. "I'm after the guy who goes to Virginia, brings back big loads and sells them to make a profit. We're going to catch them, and we're going to prosecute them."

Maryland law allows residents to have up to two packs of cigarettes that do not bear the state's tax stamps, while nonresidents passing through can possess a carton. Transportation of unstamped cigarettes is a felony punishable by a prison term of up to two years and a $50-a-carton fine; possession is a misdemeanor.

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