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Arizona One of Top States for Cigarette Smuggling, Report Says

Arizona ranks second in the U.S. for highest levels of cigarette smuggling, with more than 50 percent of cigarettes coming from out of state, according to a study.

The report from the Tax Foundation and the Mackinac Center for Public Policy on black market cigarette sales estimates that more than 51 percent of cigarettes in Arizona were purchased elsewhere originally.

Arizona ranks behind New York, where the report says trafficked cigarettes account for nearly 57 percent of the total number. Rounding out the top five states are New Mexico, Washington, and Wisconsin, although New York and Arizona are the only states where smuggled cigarettes exceed 50 percent.

The report attributes the growing black market cigarette industry to differences in each state's cigarette taxes.

"Public policies often have unintended consequences that outweigh their benefits," the report says. "One consequence of high state cigarette tax rates has been increased smuggling as criminals procure discounted packs from low-tax states to sell in high-tax states."

Arizona's $2 cigarette tax is the highest in the Southwest, and the 12th-highest in the nation. Many cigarettes are smuggled in from Mexico or surrounding states where the tax is much cheaper than Arizona's. Other border states like California, New Mexico, and Texas fall in the top eight for black market cigarette sales.

Cigarette smuggling can take many different forms. It can range from buying a pack of cigarettes in one state and transferring it to another state, to trafficking from organized crime groups. Smuggling also includes "counterfeit state tax stamps, counterfeit versions of legitimate brands, hijacked trucks, or officials turning a blind eye," the report says.

Some states have taken an active response to cigarette trafficking, like banning common carrier delivery of cigarettes, increasing law enforcement on interstates, and cracking on down on tribal reservations that sell tax-free cigarettes.

Even though authorities are taking steps to reduce cigarette smuggling, the problem still persists. States with high cigarette taxes lost about $5 billion in revenue in 2010 because of cigarette smuggling, according to the U.S. Department of Justice's Bureau of Alcohol, Tobacco, Firearms, and Explosives.

Click here to see the full report.

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