State to collect $18 million more in cigarette taxes

By Kevin Dayton
Advertiser Capitol Bureau Chief

It turns out the black market for cigarettes in Hawai'i was much larger than some state officials believed.

The state Tax Department now predicts it will collect $18 million more in tobacco taxes this year than last year because of the state's new tax stamping program.

That suggests one in every four packs of cigarettes was sold here illegally before the stamping program was initiated, or nearly 2 million cartons of smokes each year.

The state cracked down on illegal cigarette sales on Jan. 1 by imposing a new requirement that each package of cigarettes sold in Hawai'i must be stamped to prove the $1-per-pack state tobacco tax has been paid.

Richard Botti, president of the Hawaii Food Industry Association, said it took advocates three years to get a tax stamping bill passed and signed into law, in part because state tax officials doubted that the black market was as widespread as store owners believed.

"There was evidence people were out there in a coordinated effort" that included buying untaxed cigarettes on military bases for resale, and illegally importing cigarettes from overseas, he said.

"I guess the black market activity did account for much more than we had anticipated," said state Tax Director Marie Okamura. "We had reports of black market cigarettes coming by the container load, but we couldn't get evidence of that."

The new law makes it a felony for anyone who isn't licensed to sell cigarettes to possess 15 cartons of unstamped smokes.

So far about 20 people have been arrested for offering unstamped cigarettes for sale or for bringing sizable quantities in from overseas, said Deputy Attorney General Earl Hoke.

Former state Tax Director Ray Kamikawa said state officials didn't immediately embrace the tax stamping concept in part because no one had the staff or expertise to enforce the tax stamp law. The Health Department, Tax Department and county liquor commissions all said they couldn't do it, he said.

The state attorney general's office later stepped in, but Hoke declined to say how many investigators and lawyers work on tax stamp enforcement.

The state had collected about $4.5 million per month in tobacco taxes last year, but with the new stamp law those collections jumped to about $6 million per month.

Hawai'i was one of the last states to establish a tax stamping program, but has some of the highest state tobacco taxes in the nation.

"I'm very pleased that I had a part in generating some good income for the state," Botti said.

Reach Kevin Dayton at 525-8070 or kdayton@honoluluadvertiser.com