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Group Looks To Find Lost Mass. Taxes

Boston — In an investigation that hearkens back to the days of prohibition, a special commission is trying to gauge the level of cigarette smuggling in Massachusetts and its potential cost to the state in lost tax dollars.

The nine-member Illegal Tobacco Commission is looking into a range of sources for the black market cigarettes, from individuals stuffing their car trunks to wholesale domestic and internationals bootlegging operations.

Revenue commissioner Amy Pitter said the goal is to come up with recommendations on ways to crack down on the activity.

“The reason organized crime gets into this business is that it’s more profitable and less risky than dealing drugs,” she said.

The excise tax on cigarettes in Massachusetts increased by a dollar to $3.51 per pack earlier this year. The state’s cigarette tax rate now ranks second in the nation behind New York.

New Hampshire is the only New England state not to impose a sales tax on cigarettes, making it a tempting target for potential smugglers hoping to buy cigarettes in bulk there and hop back across the border into Massachusetts.

Pitter said there are different ways to try to measure the amount of illegal tobacco sales. One is to try to determine the number of cigarette packs sold in Massachusetts and compare that to the amount of taxes collected.

Another method is to collect empty cigarette packs from the trash and city streets and see how many are missing the state excise tax stamp. One such survey in Boston found about 20 percent of the tossed packs didn’t have the stamp, she said.

Cigarette smuggling is potentially very profitable. Pitter said a tractor trailer of cigarettes purchased in a low tax state like Virginia, which ranks last in the nation, and sold in Massachusetts could bring in up to half a million dollars in profit.

The state is expected to collect $688 million from the excise tax on all tobacco products in the current fiscal year.

If smokers paid all the state taxes for their tobacco consumption in Massachusetts, the state would collect an additional $74 million to $295 million a year than it currently collects, officials said.

Massachusetts has the highest tax rate on cigarettes among New England states, followed closely by Rhode Island and Connecticut, which rank third and fourth in the nation.

But the tax rates in Maine, Vermont and New Hampshire are lower.

One of the biggest questions facing the committee is the scope of illegal tobacco sales in Massachusetts. The commission is also looking at how other states combat counterfeit tax stamps and underground distribution rings. Another question the commission is grappling with is how much of a recorded decline in smoking that typically follows a hike in taxes is due to people quitting and how much is due to illegal sales or cross-border shopping.

The most recent cigarette tax hike was the second in six years. In 2008, Massachusetts increased the tax rate on pack of cigarettes from $1.51 to $2.51 per pack.

Pitter said the panel is looking beyond just cigarette sales to smokeless tobacco products and the potential impact of electronic cigarettes. Sales of so-called “e-cigarettes” have increased from $20 million in 2008 to an estimated $1 billion in 2013.

A significant shift by smokers to electronic cigarettes could cut into the tobacco tax revenue.

To be charged with the felony of the possession or sale or illegal cigarettes, police must seize at least 60 cartons — or 12,000 individual cigarettes — without an official stamp showing the state excise tax has been paid.

Penalties range from up to $100,000 or $500,000 for a corporation, or by imprisonment for not more than five years.

The commission charged with producing a report by March 1, recommending legislation, enforcement actions and penalties.