For Immediate Release - February 28, 2014

Commission Issues Recommendations to Combat Tobacco Smuggling

Members call for unified enforcement, stiffer penalties

(Boston, MA) - In a comprehensive report released today, the Commission on Illegal Tobacco, chaired by Massachusetts Revenue Commissioner Amy Pitter, proposed the state create a multi-agency task force to enforce tougher laws and penalties. This was among 12 recommendations to reduce tobacco smuggling and the loss of an estimated $62 to $246 million in excise tax revenues.

“What we learned from the testimony is that smuggling is big business, much of it fueled by organized crime and that no one agency or entity can combat tobacco smuggling on its own,” said Commissioner Pitter. “We also learned that we have to change the risk/reward calculation in our favor by increasing enforcement on the one hand and increasing fines and penalties on the other.”

The Commission envisioned a task force made up of members from multiple state agencies including the Department of Revenue, Attorney General’s Office, Massachusetts State Police, and the Department of Public Health. The task force would also be provided with dedicated operational resources and strive to foster relationships with appropriate federal enforcement agencies such as the federal Bureau of Alcohol, Tobacco, Firearms and Explosives.

“This comprehensive report includes recommendations on legislative and regulatory action that the Commonwealth should take to combat the illegal tobacco market and address the loss of tax revenue in Massachusetts,” Attorney General Martha Coakley said. “As a member of this Commission, our office takes seriously the important role of working to help strengthen anti-smuggling laws and increase penalties to more meaningful levels.”

“I commend the Illegal Tobacco Commission for its hard work in addressing a problem that not only costs the Commonwealth tens of millions in revenues but harms law-abiding Massachusetts vendors by creating an unfair and unequal market place,” said State Treasurer Steven Grossman. “The report provides an effective framework for the Legislature to consider in addressing a serious tax avoidance problem as well as curbing illicit tobacco sales.”

The report and recommendations come after the nine member commission met over the course of five months to hear from state and federal law enforcement officials, tobacco industry experts and public health advocates. Commission members believe instituting stricter fines and penalties for violating tobacco statutes will make smuggling less attractive to those who participate in the illegal market and serve as a deterrent. Members also recommend re-writing the state’s forfeiture laws to cripple criminal business financially and provide law enforcement officials with the resources to combat the illegal trade.

“This Commission has been very successful in examining the many facets of the illegal tobacco trade, as well as offering a comprehensive set of recommendations to combat these activities,” said Senator Michael Rodrigues. “Our work on the Commission is just the beginning of these efforts, but I believe that we have created a strong foundation for tackling illicit tobacco sales and assisting the many legitimate businesses that are being negatively impacted.”

“The adverse economic impact of the illegal tobacco market in Massachusetts is something that can no longer be ignored,” said State Representative Brian Mannal. “The fact of the matter is that the illegal sale of tobacco deprives the Commonwealth of revenue and poses a serious health risk to consumers who unwittingly purchase counterfeit and unregulated tobacco products. The recommendations of the Special Commission will undoubtedly help to curb this form of tax fraud and protect the public from foreseeable harm.”

Commission members learned criminals smuggle cigarettes and other tax products from lower tax states and untaxed counterfeit product from overseas. Department of Revenue economists estimate the state loses between $62 million to $246 million in cigarette excise taxes and $12 million to $49 million in sales taxes per year due to the illegal cigarette market.

"Each year, the wholesale distribution industry has watched the growth in the illegal tobacco trade in Massachusetts with great concern,” said Paul Caron, Executive Director of the Northeast Association of Wholesale Distributors. “It denies the Commonwealth tens of millions of dollars in excise and sales tax revenues that is legally due and also diverts millions of dollars in sales of tobacco products from our state's retailers and the legitimate distribution chain, to the illegal black market.”

“Our organization was pleased to participate in the deliberations of the special Commission and make recommendations that will hopefully result in increasing tax collections to the Commonwealth and return lost sales to the legitimate tobacco market".

The Commission was created by legislation in the FY2014 budget Section 182 to determine the economic impact of the black market tobacco trade and recommend legislation, enforcement and penalties to strengthen tobacco excise and sales tax collections. The Department of Revenue will be working with lawmakers to draft legislation necessary to implement the Commission’s recommendations. The Commission’s report can be found at www.mass.gov/dor pdf format of Report of Commission on Illegal Tobacco .