Report: Illinois sees biggest increase in cigarette smuggling

[December 12, 2022]  By Andrew Hensel | The Center Square

(The Center Square) – A new report shows that many Illinois residents are going out of state to purchase their cigarettes, costing the state hundreds of millions of dollars in lost tax revenue.

A joint report by the Mackinac Center for Public Policy and the Tax Foundation shows that due to Illinois' high sales taxes on tobacco, many residents have been smuggling in the product from other states.

Illinois had the biggest increase in smuggling from 2019-2020, the report said. Net cigarette smuggling increased by more than 14 percentage points for 2020, resulting in a smuggling revenue impact loss of $334 million.

"Illinois has a pretty high cigarette tax rate, especially in Chicago," Adam Hoffer of the Tax Foundation told The Center Square. "The state increased their excise tax rate on cigarettes by a dollar a pack."

Illinois has an excise tax of $2.98. When including the $3.00 per pack tax in Cook County and $1.18 per pack tax in the city of Chicago, the total price for the tax alone comes to $7.16 per pack. Taxes in neighboring states are lower, with Wisconsin's tax at $2.52, Iowa's at $1.36, Indiana's at $1.00, Kentucky's at $0.60 and Missouri's at $0.17.

"Illinois’ neighbors – Indiana, Iowa, Kentucky, and Wisconsin – all saw an increase in outbound smuggling," the report said.

Michael LaFaive of the Mackinac Center for Public Policy said when customers leave the state, neighboring states get the benefits.

"When you look at the revenue flowing to the treasury for the state of Indiana, it is a positive one as a function of cigarette smuggling because so many people from Illinois will go and buy their cigarettes from there," LaFaive told The Center Square.

When buying cigarettes across state lines, Illinois residents also can purchase other products as well, LaFaive said.

"Cigarettes are a complimentary good, if you go to the mom-and-pop store to buy alcohol, you often pick up cigarettes and vise versa," LaFaive said. "I think there is very clearly a spillover impact that we are not measuring."

The report shows that outbound smuggling increased by 17.7 percentage points in Indiana, totaling more than $42 million in revenue for the state.

Andrew Hensel has years of experience as a reporter and pre-game host for the Joliet Slammers, and as a producer for the Windy City Bulls. A graduate of Iowa Wesleyan University and Illinois Media School, Andrew lives in the south suburbs of Chicago.