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April 28, 2003

Study: Failure to collect all tobacco taxes cost state more than $500 million in 2001

New York State lost more than half a billion dollars in 2001 by failing to collect cigarette taxes, a study shows.

The state lost between $526 million and $609 million in 2001 because the state failed to collect taxes on tobacco products from sales via Native American convenience stores, the Internet, 800-number phone networks, bootlegged sales, and cross-border sales, the study concluded.

Early 2002 data suggests as much as $895 million was lost last year, the study added.

The research was done by independent economist Brian P. O'Connor of Ridgewood Economic Associates, Ltd. The Alliance for the Fair Application of Cigarette Taxes (FACT), a group of businesses, trade groups, and individuals, commissioned the study.

"The state is turning its back on a legitimate revenue stream that could help stabilize a badly bruised economy," O'Connor said."Our research shows that a change in New York policy could reap significant benefits for the state's cash-strapped coffers."

O'Connor found that if taxes from these sources had been collected as the law provides, taxable cigarette sales in New York State would have been higher in 2001 by between 41 million and 47.5 million cartons.

At the New York State excise tax rate of $11.10 per carton, those cartons would have generated additional tax receipts of between $455 million and $527 million. Applying sales taxes of 4 percent to an average sales price of $43.13 per cigarette carton, revenues would have jumped to a grand total of $526 million to $609 million.

O'Connor estimates that those additional tax revenues would have added $298 million to $345 million to the state's General Fund, plus $228 million to $264 million to the HCRA (Health Care Reform Act) Fund.

"Uncollected cigarette taxes represented a potential windfall of more than half a billion dollars in 2001 - and up to nearly $900 million last year -- at a time when policy makers are struggling to fill a gaping budget hole," O'Connor said.