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Tobacco tax cheating falls: Dodging levy on cigarettes drops, but rises in other areas.
[June 27, 2007]

Tobacco tax cheating falls: Dodging levy on cigarettes drops, but rises in other areas.

(Sacramento Bee, The (CA) (KRT) Via Thomson Dialog NewsEdge) Jun. 27--Responding to complaints that its estimates of cigarette and tobacco tax evasion were overstated, the California Board of Equalization released new figures on Tuesday showing a 37 percent drop in tax dodging by cigarette smokers in 2005-2006.

Tax evasion associated with cigarette purchases fell to an estimated $182 million a year -- roughly two-thirds of it by illegitimate businesses -- for the fiscal year ending June 30, 2006, compared with the prior estimate of $292 million from the BOE in 2003.

BOE spokeswoman Anita Gore attributed the big drop in the estimates to better economic and enforcement data, a decline in smoking and a new high-technology tax stamp that is harder to counterfeit.

BOE staff also now have the power to seize untaxed cigarettes and issue citations to retailers selling untaxed cigarettes, which are often shipped from other states where taxes are lower.

California slaps an excise tax of 87 cents on every pack of smokes sold here, compared with a national median of 80 cents a pack. South Carolina and Georgia charge between 7 and 18 cents a pack.

The BOE has found evidence that businesses and consumers are skirting the levies on other tobacco products such as snuff, cigars and chew in rising numbers, Gore said. Estimated tax evasion there has jumped to $94 million from a previously estimated $50 million, the BOE said.

Gore said the higher estimated tax evasion for those other tobacco products is the result of the BOE getting better purchasing and enforcement data.

Tax evasion involving other tobacco products is growing because those products are not currently required to carry the red tax stamp that cigarettes must sport to indicate that tax has been paid on the product before it is sold to consumers in stores, Gore said.

The BOE now estimates that tax evasion linked to both cigarette and other tobacco product purchases such as chew, snuff and cigars totaled $276 million for the 2005-2006 fiscal year.

California state Auditor Elaine M. Howle criticized the BOE's tax evasion estimates last year, saying the previous figure was flawed because it was based on an unrepresentative sample and an overstated number of retailers.

Howle praised the BOE, however, for increasing consumer compliance with the tax laws on cigarette purchases by introducing the new tax stamp and cracking down on out-of-state Internet cigarette sellers who used the Web to sell smokes to California residents without collecting taxes.

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