Cigarette Smuggling in New Jersey

Report finds 40% of cigarettes smoked in New Jersey are smuggled in illegally

Cigarettes smuggled illegally into New Jersey could be costing the state more than $500 million in uncollected tax revenue each year, according to an article in The Star-Ledger.

The newspaper obtained a report written by Eric Friedman, a tax specialist with the Treasury Department in 2008 (but not officially released). "An increase in the tax rate will produce fewer legal, and more illegal, sales of cigarettes," according to the report. New Jersey's state excise tax rate, at $2.70, is more than a dollar more than neighboring Delaware ($1.60) and Pennsylvania ($1.60).

The black market retailers often use cheap, counterfeit tax stamps to avoid detection. The report -- which encouraged controlled buys, video surveillance and the use of paid informants to crack down on the smuggling -- as well as new leadership at the state Office of Criminal Investigation has led to an increase in the number of smugglers caught, according to The Star-Ledger, rising from 45 in 2009 to 192 last year.

The state is also considering the use of high-tech tax stamps, encrypted with codes including the history of each pack of cigarettes, according to the article.