Massachusetts Tax Revenue Plummets by $127 Million After Taste Ban and Black Market Thrives

The Massachusetts Illicit Tobacco Task Force (ITTF) released its latest annual report concluding


In June 2020, Massachusetts implemented strict tobacco regulations, a ban on all flavored tobacco products (including e-cigarettes(HNB products& Vaping) and menthol cigarettes), and a 75 percent increase in tobacco excise taxes. A few years later, cross-border smuggling has increased, tax revenues have declined, and state law enforcement agencies are busier.


Regional tobacco use did not change in the year after the ban took effect; tobacco sales shifted to New Hampshire, a low-tax area. The only impact has been a significant drop in revenue for Massachusetts store owners and employees, with tax revenues dropping by nearly $127 million in the first 12 months after the ban.


The ITTF notes that high taxes on tobacco(Heated tobacco heatsticks) products provide an incentive for smugglers to import from low-tax states and sell to in-state buyers willing to illegally evade Massachusetts tobacco excise taxes. It’s hard to imagine how regulators could have turned a blind eye to the surge in tobacco smuggling last year. Massachusetts State Police report that seizures of smuggled cigarettes soared from 40 packs in 2021 to more than 1,900 packs last year. In addition, illicit smokeless tobacco seizures increased 800 percent year-over-year in 2022.


In fact, the Massachusetts Department of Revenue (DOR) has increased its enforcement of state tobacco tax evasion, with inspections jumping more than 42 percent from FY 2020 to FY 2022.


Cigarette smuggling is surging, especially in states with high tobacco(heat not burn tabak) taxes or where tobacco bans are in place. Illegal cigarettes are highly lucrative for criminals, and the risk is low because the criminal penalties are mild. Organized criminals and small smugglers reap millions of dollars from this illicit market, while states are forced to spend more and more on enforcement without a long-term plan in place.


The trend of tobacco tax losses also continues, although the largest decreases were in the first year of the ban. Compared to fiscal year 2019, the state received 27 percent less revenue from all tobacco-related products, nearly 30 percent less tobacco tax revenue, and 47 percent less smokeless tobacco revenue.


Increasing tobacco taxes could reduce smoking somewhat, but because policies focus on smokeless tobacco, e-cigarettes, and combustible tobacco products, they appear to be counterproductive in protecting young people from tobacco use. An analysis by the National Bureau of Economic Research (NBER) found that “more youth smoking due to e-cigarette taxes may offset the health costs associated with reducing youth smoking e-cigarettes.”