Andrew Hyland, PhD
Roswell Park Cancer Institute
February 2, 2011
Andrew.hyland@roswellpark.org

• Availability of low price tobacco products is bad for public health
• Smokers who would have quit otherwise continue to smoke when low price options are accessible
• Cheap tobacco = more cancer, more heart disease, more emphysema

No effect
Tax/Price
Increase
Quitting
Switch to discount brands
Switch to cheaper sources (e.g., Internet,
Indian reservations, “Freddy’s van”)
Reduction in prevalence
More efficient purchases (cartons vs. packs; greater use of promotions)
Reduction in consumption
Cutting back
More efficient smoking (e.g., smoking more of the cig, deeper breaths, less time out of mouth)
Tobacco Industry
Efforts to Lower Price
(e.g., promotions, price cuts)

• What happens when states and the federal government raise tobacco taxes???
• 20+ US states increased rates since 2009
• New York case study
• US Federal excise tax increase, April 2009

Prevalence of purchasing from low/untaxed source by country

Prevalence of using discount/generic cigarettes or RYO tobacco by country



2009 data…9% no tax stamp, 36% tax stamp from different state - $0.81 increase
2010 data….8% no tax stamp, 21% tax stamp from different state – same price as 2009
Legitimate State
Tax Stamp
Non-State
Stamp
No Tax Stamp
Illegible Tax
Stamp

4/4
22/33
(from the 2009 Supplemental ITC Survey)
In New York, only 18% of cigarette packs were stamped with a legitimate
3/5
2/2
0
1/1
2/8
1/1
2/2
1/2
6/7
0/1
0
1/2
2/6
7/12
2/3
4/4
3/3
9/13
2/4
4/9
3/5
6/10 9/11
10/18
5/9
9/11
5/6
4/5
3/3
10/13
11/16
3/17
0/11
0
2/2
4/11
1/1
0
0/6
3/5 4/7
4/5
5/7
0
Note: Tax stamps are not used in states:
North Carolina
North Dakota
South Carolina
15/19

 Hard to tell what impact Federal excise tax increase has had just yet…
 Average price paid per pack increased by $0.81 cents from $3.74 to $4.55
 Quit attempt rates increased from 30% to 36% but comparable to Canadian smoker change
 CPD reduced from 20 to 18
 At both surveys, 29% reported purchasing cigarettes at a discount or low/untaxed venue

A B C
Examining Products
A: Counterfeit
B: Authentic
C: Counterfeit
Filter length difference
Trace elements
B C
12

Federal tax impact on consumption
Federal tax impact on prices

BUT…double digit growth for smokeless

Case Study: New York

New York State Cigarette Excise Tax,
1992-2010
500
400
300
200
100
0
Year
Source: New York State Department of Taxation and Finance, 2008.

Percentage of New York Smokers who Purchased from Various Retail Sources, NYATS 2004.
100
Purchased at Least Once in Past Year
Purchased "All the Time" or " Sometimes"
80
76
59
60
57
54
40
37 37
28
18
20
13
6
0
Convenience Store/
Gas Station
Low or Untaxed
Sources*
Grocery Store/
Pharmacy
Discount Store Bar/ Entertainment
Complex
*Includes Indian reservations, out-of-state sources, the Internet, toll-free numbers, and duty-free shops.
Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers:
Implications for Health, Price, and Revenue , March 2006.

Percentage of New York Smokers who Purchased from Low-Tax or Untaxed Sources, NYATS 2004.
100
Purchased at Least Once in Past Year
Purchased "All the Time" or " Sometimes"
80
60
57
37
40
32
25
31
20 13
0
Any Location Indian
Reservation
Out-of-State
9
6
Internet
6
4
14
6
Toll-Free Number Duty-Free Shop
Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers:
Implications for Health, Price, and Revenue , March 2006.

Average Price Per Pack of Cigarettes Among Smokers who Frequently Purchase from Indian Reservations and
Convenience Stores, NYATS 2004.
$7,00
$6,00
$5,00
$4,00
$3,00
$2,00
$1,00
$0,00
New York City
Remainder of New York State
Its like a 2 for 1 promotion!!!
$ 3.09
$ 2.38
$ 5.88
$ 4.52
Always Purchase from Indian
Reservations
Always Purchase from
Convenience Stores
Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers:
Implications for Health, Price, and Revenue , March 2006.

87% of New Yorkers’ Resided within
55 miles of a Lower/Untaxed
Cigarette Source in November 2003!

Proximity and Price Differentials Make the
Difference
0-30 Miles to
Reservation
64
31-55 Miles to
Reservation
30
56+ Miles to
Reservation
15
0 10 20 30 40
Percent (%)
50 60 70
Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers:
Implications for Health, Price, and Revenue , March 2006.

Percent of Western New York Smokers who
Purchase Cigarettes on Indian Reservations
“All the Time”, 2005-20010
100
80
60
40
20
0
51
59 59
65 64
2005 2006 2007 2008 2010
Source: Western New York Adult Tobacco Use Survey, 2005-2008. Erie-Niagara Tobacco Use Survey, 2010.

Behavior
Did not use low/untaxed source
Use Low/untaxed Source
Used Premium Brand
Used Discount Brand
Used RYO Tobacco
Purchased pack/loose cigarette
Purchase by the carton
Did not use any behaviors
Used 1 behavior
Used 2 or more behaviors
% using at baseline
90.7%
9.3%
48.7%
34.9%
16.5%
69.7%
30.3%
34.8%
48.1%
17.2%
Impact on Cessation at follow-up
Odds Ratio (95% CI)
1.00
0.69 (0.45-1.00)
1.00
0.86 (0.69-1.07)
0.76 (0.57-1.02)
1.00
0.67 (0.52-0.87)
1.00
0.75 (0.61-0.93)
0.59 (0.42-0.81)
Full models are also adjusted for Country, Age, Sex, Cigarettes Per Day, Minority Status, and HSI

What is New York State’s Annual Revenue Loss from Low Taxed and Untaxed Cigarettes?

Estimated Lost Revenue in New York
State in 2004 from Tax Avoidance.
600
$486 Million
500
400
Indian
Reservations
292
300
200
Internet / Phone
114
100
0
Other States
80
Lost revenue if purchased 30% of cigarettes from untaxed sources
Other States Internet or Phone Order Indian Reservations
Source: New York State Department of Health, Cigarette Purchasing Patterns among New York Smokers:
Implications for Health, Price, and Revenue , March 2006.

How Much Goes Uncollected in 2010?
No published data
However, its certainly increased since the tax went up from $2.75 per pack to $4.35 per pack
Its several hundreds of millions of dollars each year in New York State.

So What is the Impact of State and
Federal Tax Increases?







Prices increase
Reduce consumption
Promote smokeless use
Consumers change their purchase patterns
 How depends on proximity and savings to be had
Indian Reservations provide the majority of product in WNY
Tax avoidance decreases cessation
 Diminishes taxes public health benefit
Hundreds of millions of dollars in tax revenue goes uncollected each year in NY alone

What Tobacco Price Policies
Have Happened Recently?
• PACT Law – June 2010, requires all taxes paid before delivery
• Pay all applicable federal, state, local or Tribal tobacco taxes and affix any related tax stamps, before delivering any cigarettes or smokeless tobacco products to any customer in a state;
• Comply with various state and local laws as if the
Internet sellers were tobacco product retailers located in the same state as their customers;
• Register with the state and make periodic reports to state tax collection officials; and
• Check the age and ID of customers both at purchase and at delivery to stop Internet cigarette and smokeless tobacco sales to kids.

PACT Law
Law enforcement says stopping mail order cigarette sales to have huge impact on smuggling
Little empirical data…yet
Anecdotally…online cigarette vendors expect an impact and some have closed
Hypothesized to reduce price differentials, boost cessation
WNY smoke shops disproportionately impacted

80
60
Tax and Purchase Location – ITC Data from
2009 & 2010 US Pack Collection Studies
From what type of outlet was the cigarette pack that you are sending to us purchased?
52,5
Internet sales drop from
1.9% to 1.1% but not statistically significant
52,2
40
20
0
7,5
1,9
Fall 2009 (n=320)
Convenience Stores
7,5
Fall 2010 (n=366)
1,1
Indian Reservations Internet

PACT Law – Some unanswered questions
- How much of an impact will it have?
-Is the impact larger in
WNY?
-How will WNY Indian
Reservations adapt?
-How will it be enforced?
-Will it impact organized smuggling?
-Will it impact youth initiation?

Tax / Price Summary
• Higher prices perhaps the most effective tobacco control strategy available to us
• Higher taxes commonly used at the state at national level
• Biggest threat to the impact of tax policy is
‘leakage’
• ‘Leakage’ due to differential prices for readily available product alternatives
• Most effective tax policy creates uniformly high prices