Cigarette smugglers taking advantage of Missouri’s low tax rate

ST. LOUIS (KTVI) – Smugglers are making thousands of dollars just by driving cigarettes from St. Louis to Chicago because tax rates make one pack of cigarettes $6 more expensive in The Windy City.

Fox 2 News recently followed a suspected cigarette smuggler in north St. Louis. He was buying cartons of cigarettes from several places and even told one of the vendors he planned to take a van load to Chicago, where he might make thousands of dollars in profits.

Fox 2 obtained pictures from Illinois Department of Revenue investigators, who caught smugglers hiding cigarettes in cars, vans, and tractor trailers.

The feds just indicted 14 people in St. Louis this past February.

“This was our fourth major indictment in dealing with these groups since I have been U.S. Attorney and I am confident we will see more before I leave,” said U.S. Attorney with the Eastern District of Missouri Richard Callahan.

This latest case took investigators to New York City, where the state and city tax is second highest to Chicago. In New York, it’s $5.85 a pack.

Once the smugglers get the contraband cigarettes into the hands of street vendors, they might get sold individually, sometimes called “loosies.”

“With respect to the New York smuggling operation, of course that’s the Eric Garner case; he was one of the street vendors peddling, among other things, cigarettes. There was a complaint of other merchants that led to that confrontation,” Callahan said.

Callahan said federal prosecutors aren’t after the guys making a buck on the street, that’s up to local police and tax investigators. The feds are after the smugglers.

“We are concerned where the profits are going and we believe they are going to fund other activities that are perhaps more evil,” Callahan said. “We do suspect terrorism as one of the activities that may be funded.”

Missouri is a smugglers’ Mecca, with the lowest cigarette tax in the country – just 17 cents. Every surrounding state is over a dollar. Just across the river in Illinois, the tax is a $1.98, but it’s the drive between St. Louis and Chicago that creates a huge profit pipeline, with Chicago’s combined city and state cigarette tax at $6.16.

“We are the China hub when it comes to cigarette trafficking,” Missouri State Senator Jamilah Nasheed said. Senator Nasheed supported the recently failed Amendment 3, which would've raised Missouri cigarette taxes by 60 cents. She thinks it failed partly because people don't know about the smuggling.

Why would Nasheed think people failed to know about it?

“Because there is so much going on in the world and people are paying more attention to their bottom line, their bread and butter issue, not the cigarette taxes and the smuggling,” she said.

It is such a big business from criminal operations that a recent study found cigarette smuggling is more lucrative than distributing uncut cocaine. The same study, conducted by the National Academies of Sciences, Engineering and Medicine, found more than half of all cigarettes sold in New York are smuggled into the state.