Cigarette smuggling continues to cost Washington state hundreds of millions in lost tax revenue each year. Lawmakers should consider ways to harness and capture some of these evaporating tax dollars.
The state of Washington continues to lose an astounding amount of tax revenue to a little-discussed problem: cigarette smuggling.
This type of tax evasion costs the state hundreds of millions a year. Yet it often fades into the background during budget debates, which can get held up by disagreements on how to spend smaller amounts of money.
All told, the state Department of Revenue estimates that about one-third of cigarettes consumed in Washington state are smuggled — often over state lines — to avoid paying the state’s hefty cigarette tax of $3.025 per pack.
The bleeding has continued despite state officials’ recent efforts to crack down on the practice. In the 2017 fiscal year, state officials collected a total of $378 million in cigarette taxes but at the same time lost an estimated $268.5 million to tax evasion.
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Washington also missed out on an additional $47.2 million in sales tax revenue that should have been collected that year on the estimated 88.8 million packs of cigarettes that were consumed in the state, but not taxed, according to the Revenue Department.
Some of this smuggling is bound to occur, given that Washington’s cigarette tax rate is significantly higher than neighboring Idaho’s or Oregon’s.
But, as some of the state’s recent enforcement efforts show, a sizable amount of lost tax revenue can be recouped through modest investments in enforcing the law.
In 2015, the state Legislature approved about $1.3 million per year so the Liquor and Cannabis Board could create a unit of 12 officers dedicated to tobacco tax enforcement. Since the team’s formation in October 2015, it has recovered more than $32 million by penalizing tax evaders and recovering unpaid taxes owed on tobacco products.
That’s a big return on investment. The Legislature should look to build on these efforts, and evaluate whether to expand the tobacco-tax enforcement team in the future. At a minimum, lawmakers should ensure that the team’s funding remains intact during the Legislature’s upcoming budget-writing session.
Recovering even a small amount of the money still being lost to tax evasion could help the state pay for important programs, including education campaigns that are shown to help prevent kids from smoking and cut down on public health-care costs. The state currently spends only about $3.5 million annually on these types of tobacco prevention and cessation efforts, a total that includes federal grants.
As it stands today, too much valuable tax revenue is evaporating into the ether, failing to provide the state with any benefit at all.