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The Unsmokables

Higher cigarette taxes mean more bootlegging.

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When Matthew Anderson, a burly 35-year-old senior state tax investigator, walks into a cluttered grocery store in Kensington, Brooklyn, he knows to follow the clerk’s eyes. “As soon as you say ‘I’m here to do the inspections on cigarettes,’ the eyes go to where the stuff is,” he says.

Inside, as Anderson’s partner inspects a rack of cigarettes above the register with a black light for counterfeit tax stamps, the clerk, Kamalbir Singh, keeps glancing at the shelving near his feet. They find 134 packs of Newports and Marlboros with apparently counterfeit tax stamps hidden underneath the cash register. Another 760 packs of what appear to be illegally imported John Player Gold Leaf cigarettes are found in secret compartments underneath some shelves.

The underground trade in cigarettes is thriving across New York, and it’s about to get worse. On June 3, the state cigarette tax increased by $1.25, to $2.75. With the $1.50 city tax, the total retail price for a pack is now the highest in the country—around $9. This makes selling black-market cigarettes even more tempting for bodega owners, who can charge the full price but pocket the government’s $4.25. Street vendors peddling bootleg smokes can make a profit while selling for as little as $5 per pack.

This makes Anderson’s job harder. “Oh, absolutely,” he says when asked if the new tax would increase illegal sales. “It’s just a huge moneymaker for these guys.” According to the Independent Budget Office, the city loses around $40 million a year in cigarette-tax revenue this way. Untaxed cigarettes are readily available on Indian reservations, from abroad, and on the Internet for as little as $2.30 a pack. Organized crime is sometimes involved. Last week, New York tax investigators and federal agents busted 21 cigarette smugglers in a $6 million sting. Officials allege that the smugglers, of Arab extraction, also were involved in illegal gun trading and could have links to terrorism.

The number of inspectors in the city will soon nearly double to 64. “It’s no longer cut-and-dry who the bad guy is—everybody out there has their hands in it,” says Angela Murray, another investigator. “Now, with the new cigarette tax, forget about it … It’s definitely going to increase.” But in the meantime, Singh was arrested and could be fined as much as $10,000.

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