Cigarette Taxes and Smuggling in Maine


Michael Lafaive and Todd Nesbit of the Mackinac Center have recently updated their study on cigarette taxes and smuggling (pdf). The video below summarizes the study and is required viewing for you out there that believe a few cents don’t influence people’s behavior . . . turns out it will drive a man through a brick wall, literally.

For Maine specifically, the study finds that per adult legal sales is one of the lowest in the country at 52.3. The reason for this low level of sales is because of large amounts of commercial smuggling, i.e., the mafia, drug gangs, etc., (accounting for 20.48 percent of all sales).  Surprisingly, Maine is a small net exporter of cigarettes due to casual, i.e., cross-border shopping, (accounting for 2.59 percent of all sales) and international with Canada (accounting for 4.34 percent of all sales).

It is conventional wisdom that Mainers shop elsewhere for their cigarettes, usually in New Hampshire.  However, New Hampshire has more than tripled their cigarette tax to $1.78 per pack from $0.52 only five years ago. As a result, it was recently reported that cigarette sales in Maine are up 5 percent in the first half of 2010:

With New Hampshire no longer the land of cheap cigarettes, more Mainers may be buying their smokes at home rather than venturing across the border, said Mike Allen, research director with Maine Revenue Services.

“We talked to some of the wholesalers and they indicated they were seeing a shift in their sales from New Hampshire stores along the border to Maine stores along the border,” Allen said. “That reinforced for us a little bit that that may be what’s going on.”

Another reason for being classified an exporter state is that Massachusetts’ cigarette tax is also now higher than Maine’s ($2.51 per pack versus $2.00 per pack, respectively).  Since much of Maine’s tourism originates in Massachusetts, it’s not much of a stretch to imagine at least some of them stocking up on cigarettes before heading home.

The question now is–will Maine’s policymakers allow businesses to enjoy this small piece of renewed economic competitiveness or will they again succumb to the temptation to increase revenue?