Use of Tobacco Tax Stamps to Prevent and Reduce Illicit Tobacco Trade—United States, 2014
May 29, 2015 / Vol. 64 / No. 20
In the United States, illicit trade primarily occurs when cigarettes are bought from states, jurisdictions, and federal reservation land with lower or no excise taxes, and sold in jurisdictions with higher taxes. Applying tax stamps to tobacco products, which provides documentation that taxes have been paid, is an important tool to combat illicit trade. Comprehensive tax stamping policy, which includes using high-tech stamps, applying stamps to all tobacco products, and working with tribes on stamping agreements, can further prevent and reduce illicit trade. This report indicates that although 48 states, including the District of Columbia (DC), required low-tech tax stamps on cigarettes as of January 1, 2014, only four of these authorized the use of high-tech stamps, which have anti-counterfeit technology that enables enforcement agents to immediately authenticate the stamp and to detect counterfeit stamps. Depending on analytical approaches and definitions of illicit trade, it is estimated that 8%–21% of cigarettes consumed in the United States are purchased illicitly. These illicit purchases undermine tobacco control efforts, might contribute to health disparities, and reduce local and state revenues by billions of dollars annually. Lack of comprehensive tax stamping could thwart U.S. efforts to reduce illicit trade and complicate law enforcement.
A comprehensive approach to tobacco tax stamping could be an important tool in reducing illicit trade in the United States. Applying tax stamps to all tobacco products, and for those states with federal reservation land within their borders, working with tribes to negotiate mutually beneficial agreements, including the use of stamps on tobacco products sold on reservation land, could have an important impact on reducing illicit trade and further reduce smoking and associated health care costs as well as recoup lost revenues from illicit trade. Additionally, introducing high-tech tax stamps with new technologies including encryption, holograms, and scannable barcodes in all states could further reduce counterfeiting and improve supply-chain monitoring and enforcement.
States with laws requiring tax stamps on cigarettes, little cigars, and roll-your-own tobacco—United States, January 1, 2014
- Tax stamps are required on cigarettes by 48 states (including DC).
- Three states do not require any tax stamps (North Carolina, North Dakota, and South Carolina).
- Four states authorize the use of encrypted tax stamps (California, Massachusetts, Michigan, and New Jersey); New Jersey has not implemented its use.
- Of the 17 states that taxed little cigars at an amount equivalent to cigarettes, which makes them subject to stamping, only five of these states’ laws explicitly required stamps on little cigars (Illinois, Iowa, Massachusetts, Rhode Island, and Vermont).
- Of the five states that taxed roll-your-own tobacco (RYOT) as cigarettes, which makes them subject to stamping, only two explicitly required stamps on RYOT (Vermont and Washington).
Tribal lands requiring tax stamps on cigarettes, little cigars, and roll-your-own tobacco—United States, January 1, 2014
- Of the 34 states with federal reservation land within their borders, 20 regulated tribal tobacco sales.
- Of the 20 states that regulate tribal tobacco sales, nine require stamps on all products sold on a reservation (Arizona, Florida, Nebraska, Nevada, New Mexico, New York, Oklahoma, Washington, and Wisconsin).
- Of the 20 states that regulate tribal tobacco sales, four only require stamps to products sold to non-members of the tribe or on all products sold to tribes without tax agreements with the state (Idaho, Minnesota, Montana, and Utah).