Massachusetts Tobacco Controls Fall Short of Expectations as Cross-Border Smuggling Rises and Tax Re

Since Massachusetts implemented stricter regulations on tobacco products in June 2020, including a ban on the sale of all flavored tobacco products (including vaping and menthol cigarettes) and a 75% increase in tobacco consumption tax, cross-border smuggling has increased, tax revenue has decreased, and state inspectors have been busy.

According to a report from the Maine Policy Institute on September 4, since Massachusetts (abbreviated as "Mass") implemented stricter regulations on tobacco products in June 2020, including a ban on the sale of all flavored tobacco products (including vaping and menthol cigarettes) and a 75% increase in tobacco consumption tax, cross-border smuggling has increased, tax revenue has decreased, and state inspectors have been busy.

One year after the ban was implemented in June 2020, tobacco consumption in the region did not decrease; instead, sales shifted to neighboring states, primarily to New Hampshire, where taxes are lower. The only result appears to be a significant reduction in income for shop owners and employees in Massachusetts, along with a loss of $11.4 million in tax revenue.

The ITTF (Illegal Tobacco Task Force) mentioned in last year's report that the high tax rates on tobacco products in Massachusetts compared to other states provide an incentive for smugglers to import such products from low-tax states and sell them illegally in the state. The Bureau of Alcohol, Tobacco, Firearms and Explosives also pointed out that "tobacco smugglers buy tobacco from low-tax states and then sell it in high-tax states."

This raises some concerns about how authorities may have overlooked the surge in tobacco smuggling last year. Menthol cigarettes and cigars are the largest categories of illegal tobacco products. Massachusetts police reported that the volume of seized smuggled cigarettes surged from 40 packs to over 1,900 packs last year. Additionally, the volume of seized illegal smokeless tobacco increased by 800% in 2022 compared to 2021.

In fact, the state's IRS has intensified enforcement against tobacco tax evasion. From fiscal year 2020 to fiscal year 2022, inspection activities increased by over 42%. This has led to a significant increase in seizures, while cross-border smuggling continues to persist.