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By Lawrence Delevingne

Tax Revenues Up In Smoke

Their coffers already diminished by the financial crisis, some cities are focusing on another source of leaked tax revenues: the trade in bootleg cigarettes. Last month a smuggler was sentenced to 30 months in prison and ordered to pay taxes owed on millions of cigarettes he hauled from low-tax Kentucky to resell in Chicago, bypassing the city’s $3.66-a-pack tax. On Sept. 29, New York City sued retailers on a Long Island Indian reservation to stop them from allegedly selling millions of untaxed cigarettes that wind up on store shelves and street corners in the city. The per-pack tax in New York City rose to $4.25 in June, bringing the total price to $9. (Reservation residents can buy tobacco tax-free.) Statewide, some $1 billion in taxes is lost yearly because of such sales by reservation retailers, the city says. Nationwide, the bootleg trade is “thriving,” says Patrick Fleenor, chief economist for the Tax Foundation. And recent tax increases like New York’s will “exacerbate the problem.”