WOOD DALE, Ill.—Scores of tobacco retailers in the U.S. are taking advantage of a federal tax loophole to offer deep discounts on roll-your-own cigarettes. But the practice is attracting scrutiny from regulators and cigarette manufacturers. At Smoke Zone, a store in this Chicago suburb, customers one recent afternoon flocked to two high-speed rolling machines that produce a carton of cigarettes in eight minutes. The price: $21—less than half the cost of a carton of Marlboro cigarettes.

“People have waited an hour for these some days,” said Taren DeNicolo, the store’s manager.

About 150 tobacco outlets in some 20 states are deploying the novel roll-your-own machines to tempt recession-weary smokers, according to an estimate by one maker of the devices. But some regulators say the stores may be violating U.S. and state laws that govern cigarette manufacturing.

“These machines raise a number of questions,” said David Rienzo, an assistant attorney general in New Hampshire, which has sued several retailers alleging they are acting as cigarette manufacturers and should pay applicable fees.

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David Kesmodel/The Wall Street Journal
Zone in Wood Dale, Ill. The machine produces a carton in about eight minutes priced at less than half that of some commercial brands.

Here’s where the tax loophole comes into play: At Smoke Zone and other retailers, The Wall Street Journal found, store employees or customers insert into the machines tobacco labeled “pipe tobacco.” This substantially reduces the stores’ and smokers’ costs because the federal excise tax on pipe tobacco is $2.83 a pound—compared with $24.78 a pound for the rolling tobacco traditionally used to make hand-rolled cigarettes.

Congress in 2009 sharply raised the federal excise tax on rolling tobacco to help finance the expansion of a children’s health-insurance program backed by President Barack Obama.

New Hampshire’s Mr. Rienzo said that after the tax increase took effect, “numerous manufacturers that sold roll-your-own [tobacco] said, ‘Why not just put a pipe-tobacco label on it, and you won’t have to pay the increased federal excise tax?’”

Other companies created new brands they call pipe tobacco but essentially contain the same tobacco as in their roll-your-own products, said Kevin Altman, an independent tobacco-industry consultant in Richmond, Va.

Shargio Patel, president of Inter-Continental Trading USA Inc. in Mount Prospect, Ill., confirmed his company began offering pipe tobacco under its OHM brand that is similar to its rolling tobacco due to the tax increase. “We’re just following what other companies are doing,” he said.

Some cigarette makers decry the loophole that has created new low-priced competition. “We are complying with the law, but some companies are not doing so in order to gain an unfair advantage,” said Ron Bernstein, chief executive of Liggett Vector Brands Inc., a unit of Vector Group Ltd. that is the fifth-largest U.S. cigarette maker by sales.

In the 14 months since the tax increase, the volume of pipe tobacco sold in the U.S. more than tripled to about 21 million pounds, according to data from the U.S. Treasury’s Alcohol and Tobacco Tax and Trade Bureau. Rolling-tobacco sales volumes, in contrast, fell about 60%.

The tax loophole cost the U.S. government more than $345 million in the first 15 months since the tax increase, estimated Daniel Morris, who tracks tobacco production data for the Oregon Public Health Division.

Under U.S. Food and Drug Administration regulations, cigarette makers must place health-warning labels on packaging and can’t use terms such as “light” in describing cigarettes—a term being used by some retailers selling the roll-your-own cartons, the Journal found. The FDA “is gathering more information about practices related to these machines to determine the appropriate regulatory response,” an agency spokeswoman said.

Meanwhile, the Treasury’s tobacco-tax bureau is soliciting industry input to help write new rules to clearly differentiate pipe tobacco from rolling tobacco. The process could take months, said an agency spokesman.

Some loose-tobacco makers and retailers say they are doing nothing wrong and that Congress created the problem by raising the excise tax on rolling tobacco—typically used by smokers with lower incomes—by more than 2,000%. “I don’t think the founding fathers of this country meant for taxes that could put companies out of business,” said Jeff Martin, general manager of Rouseco Inc., a pipe and rolling tobacco maker in Kinston, N.C.

Phil Accordino, co-owner of RYO Machine Rental LLC of Girard, Ohio, says his company has sold or leased about 200 of the rolling machines. He said his company, which is about two years old, simply has improved on gadgets some consumers use to roll their own cigarettes.

Jerry Kunz, 39 years old, left a store in Addison, Ill., recently with five cartons of cigarettes made by the machines. “They’re not as good as Marlboro,” he said, but “it’s saving you money.”

With Bloomberg already besieged by protests and angry letters calling for an apology over his offensive “cowboys and Indians” statement, Governor Paterson says he is worried about possible “violence and death” over the state’s plan to collect taxes on cigarettes sold on Indian reservations. Paterson said, “There will be quite an uprising and protest to this, but I am going to maintain this policy…The state police tell us over and over again that there could be violence and death as a result of some of the measures we’re taking.”

Meanwhile, U.S. District Court Judge Richard Arcara has reserved his decision on whether to grant the Seneca Nation of Indians a temporary restraining order against New York State’s enforcement of the new tax laws. But whether or not the order is granted, the Seneca seem ready for a fight. One post on the Seneca Voice blog reads, “Lets start setting up some fires here and there just to let the public know that we are serious and we are ready to battle if this is what it is going to come to.”

Because of the impending tax collection, the Onondaga Nation says they will most likely stop selling national brand cigarettes at the beginning of September. Lawyer Joe Heath told Syracuse.com, “Unless something changes, as of Sept. 1 we won’t be able to sell major brands that are untaxed. It doesn’t make that much sense to sell them at the same price as people can get them at the convenience store across the street.” Instead, they will sell only Indian-made brands, and Paterson seems fine with that plan. “They can make their own cigarettes and they can sell the cigarettes on the reservation as they are entitled to by federal law. Once they come off, or anyone else comes off, of their sacred land with cigarettes that are not being taxed by New York state, we are going to address that issue.”

As states make it tougher to light up in public, tobacco manufacturers are rolling out new smokeless tobacco lines — some flavored, some spitless, prompting worries from public health officials about potentially unknown risks of these new products and their appeal to underage users. Among the new offerings in Michigan is Snus — tiny tea-bag-like pouches of tobacco that don’t require spitting.

Other products, such as tablets that look like small breath mints or dissolvable strips and sticks made of finely milled tobacco, are being test-marketed elsewhere, and, if profitable, also could arrive in Michigan.
The Michigan Department of Community Health has asked tobacco advocates to begin collecting information on who is selling the items.
“The more you can make a drug easier and cheaper to get, the more kids will use it,” said Jeanne Knopf DeRoche, whose Plymouth-based company receives state funding to do prevention campaigns and help monitor retail outlets in much of Wayne and Monroe counties.
“It’s not just about cigarettes,” said David Howard, spokesman for R.J. Reynolds Tobacco Company. “It’s about offering adult tobacco consumers options.”
Where There’s No Smokes, There Could Be New Danger
Nahla Khobeir stands in front of rows of new smokeless tobacco products — and smack dab in the middle of another public health debate.
An old lollipop container holds hundreds of coupons that customers have brought to her for their free packets of Snus, small tea-bag-like packets of spitless tobacco that come in flavors like spearmint and peppermint.
“Honest to God, when you open these” — Khobeir, a nonsmoker, said as she peeled back the packaging of some loose tobacco and took a deep whiff — “you want to eat it.”
That’s just one of the reasons public health officials worry youths would be intrigued by the new products. Others worry that a battered economy has made it even tougher to keep the products away from underage consumers.
On The Lookout
Even with new federal laws on how products can be labeled and displayed, retailers may be more willing to take risks in order to make a sale, and police departments have a tougher time finding the manpower to enforce the law, said Knopf, whose Plymouth-based company receives state funding for prevention campaigns and monitoring retail outlets in Wayne and Monroe counties.

Material by: freep.com

FLINT (WJRT) — (08/15/10) — Smokers may feel ‘put out’ because of the recent indoor smoking ban. But a new business in Flint is keeping them at ease about putting smoke in the air. Business is well underway at Let’s Roll Tobacco. There, smokers are rolling their own cigarettes with machines, and it’s saving them a lot of money. The Tobacco Rolling Machines drops cigarettes one-by-one in the bucket. The machine has Lori Coffee smiling.

Coffee is getting what she says is hard to come by for a smoker, a financial break. “We were buying six packs at a time. It was $40, and you get a whole carton for $28 here. So, it’s all about the money.”

Let’s Roll Tobacco just installed their third rolling machine on Friday, and the deal each one brings has the room packed.

“I think it’s great. We needed a break. The taxes on cigarettes are just outrageous and it hurts a little bit. It’s very, very hard to quit,” explained Coffee.

Manager Zach Smith says buying the machines was a big investment. “$31,000 for each machine. We have three of them here. It’s a pretty penny, but we make it back within a short amount of time.”

Let’s Roll Tobacco Customer Rich already rolled his own cigarettes before trying the machine. He says he does it because it saves him time. “I used to take a half-hour every night, but this takes only half an hour for a whole week.”

Smith explains exactly how the business is saving smokers the big bread. “It’s considered a self-serve. We have customers do all the filling in the tobacco, filling in their tubes and stuff like that. That’s why we can sell it for so cheap.”

The savings makes customers like Coffee regulars. She plans on coming back. “Probably once a week at least.”

All together, the machines cost $93,000. But Managers aren’t worried about the money. They expect to make it all back in just a couple weeks.

From abclocal.go.com, August 16, 2010

After more than a decade of decline, Maine’s teen smoking rate is on the rise. That is cause for concern — and more investigation to find out what’s behind the upswing and what is the most effective way to reverse it. These efforts will be helped by a $750,000 federal grant that the state received earlier this month. In 1997, Maine had one of the highest teen smoking rates in the country when 39 percent of high school students said they were smokers. Through a variety of steps — including increases in the state’s tobacco tax, millions spent on anti-smoking education and tougher laws against selling cigarettes to minors — the rate dropped by 14 percent in 2007.

Then it jumped to 18 percent, according to data from the Maine Youth Behavioral Risk Survey. The survey was changed to include a larger sample in 2008. The survey that year included more high schools, including in more rural areas, so this could explain some of the jump in smoking rates.

State officials also say a new generation of teens may be more accepting of higher cigarette prices because they didn’t experience a time when a pack sold for less before taxes were raised. Maine last increased its tax — from $1 to $2 a pack — in 2005. Between 2001 and 2007, when the average price of a pack of cigarettes went from $3.53 to $5.28, Maine’s teen smoking rate dropped from 25 percent to 14 percent.

On the other hand, others speculate that the economic hard times — and the accompanying stress — could account for more teen smoking.

It would be good to know the reason behind the rise in smoking rates so that anti-smoking efforts carry the most effective message. Maine currently spends about $11 million a year in federal and state money on smoking prevention and cessation. Unlike many other states that have used the money — much of it from tobacco companies as part of a national settlement — to balance their budgets or to fund other programs, Maine has remained committed to earmarking funds for tobacco-related work.

Reducing youth smoking is important for health and economic reasons.

Eighty-five percent of people who begin smoking before the age of 19 become lifelong smokers, according to the national Centers for Disease Control and Prevention.

In Maine, more than $600 million is spent annually on health care expenditures to treat tobacco-related illnesses and more than $530 million is lost in productivity because of smoking, according to the national Campaign for Tobacco Free Kids.

Maine is one of the first states to receive a competitive grant from the Food and Drug Administration to increase the enforcement of state and federal tobacco laws. Under the contract administered by the Maine Office of the Attorney General, the state Department of Health and Human Services will receive more than $750,000 to increase enforcement of federal and state tobacco laws.

This, and a closer look at which prevention efforts work, could help reverse this troubling trend.

From bangordailynews.com, June 25, 2010

ALBANY, N.Y. (WIVB) – New York State smokers will be sending millions more of their money up in smoke, now that lawmakers have passed the most expensive tobacco tax in America. Sen. George Maziarz warned, “There will be a clash of cultures here in this state.” Sen. Maziarz is referring to a Native American backlash over a sales tax increase on cigarettes. The tax increase passed, despite the state’s Republican senators all voting “no” to raising the sales tax. The plan also allows New York to collect tax on Indian reservations from non-tribal customers. “You really wonder if this isn’t just phony revenue. If they’re putting this out there, knowing they’re not going to collect it, just to get through the budget process,” wondered Sen. Maziarz.

Sen. Michael Ranzenhofer said New Yorkers are already overburdened.

Sen. Ranzenhofer commented, “You’re continuing to drive more and more people from this state.”

The tax will be raised from $2.75 to $4.35, making a pack cost over $9. The tax on cigars pipe and chewing tobacco and other tobacco products will jump from 46 percent of the wholesale price, to 75 percent, all of this is expected to bring in around $440 million this year.

And while lawmakers continue to pass the entire budget, another extension was voted on, but the deadline came a bit too late for New York’s Budget Division. Some of the 153,000 state workers due to be paid Wednesday now likely won’t get paid until at least Thursday.

Lawmakers voted on just over a billion dollars in savings Monday. This was the 12th time that lawmakers voted on a budget extension. Governor David Paterson has given the legislature a deadline of next Monday.

From wivb.com, June 22, 2010

ALBANY — Smoke ‘em while you can afford ‘em: After July 1, a pack of cigarettes will cost New Yorkers another $1.60, bringing the state’s excise tax from $2.75 to $4.35. Lawmakers on Monday passed the tax hike along with a controversial measure that will trigger tax collections on Indian reservations starting Sept. 1.
The tobacco tax increase marked the latest budgetary victory for Gov. David Paterson, who has been forcing through parts of his 2010-11 spending plan one week at a time in lieu of the full year’s budget, which was supposed to be completed April 1.

This week, however, Paterson did not include the tax hike in one of the extender bills. Lawmakers have to pass the extenders — which include basic items like the public payroll — in order to keep the state operating.

But the higher cigarette tax was offered in a separate nonbudget bill, one that also included something lawmakers had long wanted: a move to start taxing tobacco sales on Indian reservations.

“Prior governors were not able to get something as simple as (enforcement of) our tax laws,” said Sen. Jeff Klein, D-Bronx/Westchester.

Senators passed the measure along party lines, with 32 Democrats voting yes and all 29 Republicans present voting no. In the Democratic-dominated Assembly, the bill passed 77-64.

The vote came after tobacco lobbyists flooded the Capitol, trying for a last-minute halt to the tax hike.

And while the industry also has supported taxing Indian tobacco sales, some noted that Paterson’s measure appears to give extraordinary powers to the governor when it comes to negotiating how the Indian sales will be taxed.

“The Indian tax collection should have been negotiated,” said Sen. Bill Stachowski, D-Buffalo.

“It’s wrong,” said Assemblyman William Magee, D-Nelson, whose district includes parts of Oneida County, where he said the Oneida tribe operates 13 tax-free gas stations.

“Such a power grab violates the fundamental principles of the New York constitution,” said David Sutton, spokesman for Altria, parent company of Philip Morris, of the idea that the governor could negotiate with the tribes alone.

Despite that, a majority of lawmakers said raising the tax will bring in needed revenue, and it might deter some New Yorkers from smoking.

Sen. Ruth Hassell-Thompson, D-Bronx, said she objected to taxing the tribes but would vote for the measure “under duress.”

“It’s really hard to defend cheap cigarettes,” added Sen. Diane Savino, D-Staten Island, who said she started smoking as a youngster when a pack was less than $1; she quit, then took it up again three years ago. “This is like heroin,” she said.

The excise tax is separate from state sales taxes and any local sales taxes that might apply. With New York City’s own excise tax, a pack of name-brand cigarettes should now go above $10 in the city.

Taxes on other tobacco products such as cigars, chewing and pipe tobacco and pipe tobacco, will rise from 46 percent to 75 percent. Those increases are scheduled to take effect Sept. 1.

From timesunion.com, June 22, 2010, By RICK KARLIN

MONTREAL – Police say they’ve taken down a contraband cigarillo ring that defrauded the federal government out of $5.2 million in taxes each year. Montreal police allege that two cells linked to the ring were pulling in as much as $100,000 and $15,000 a week respectively, from the sales of primarily cigarillos, but also cigars and cigarettes.

Police conducted seizures at 22 convenience stores, 16 homes and 13 vehcles, seizing more than $100,000 in cash and stockpiles of allegedly illegal tobacco products.
Some 16 people face charges of fraud, conspiracy and trafficking in stolen goods.
Some convenience store owners are also facing charges under the provincial tobacco tax laws.
Police say convenience store clients who purchased the products at convenience store at regular prices had no idea the products were illegal.

From winnipegfreepress.com, June 17, 2010, By: The Canadian Press

A Rudd government decision to hike the tax on cigarettes has passed the Senate with broad support from all parties. Labor raised by $1.80 to more than $14 the cost of an average pack of 25 cigarettes in April without formal legislation to formalise an excise increase. The coalition backed the measure with Liberal frontbencher Concetta Fierravanti-Wells saying the move would reduce the long-term strain on hospitals and healthcare services. ”This coalition, when elected at the next election, will continue this commitment to the Australian people,” she told parliament on Tuesday.

Independent Nick Xenophon said he supported the government’s decision to increase the excise.

“I do welcome that cigarettes are more expensive,” Senator Xenophon said.

However, the measure should be seen as one plank only in a policy to reduce smoking.

Subsidising nicotine replacement therapies and improving prevention methods needed to be funded.

Senator Xenophon called for details about the uptake of teenage smoking to be published annually and better surveying of the indigenous population to assess the effectiveness of the move.

The Australian Greens also supported the legislation.

Greens senator Rachel Siewert said more should be done to target the most vulnerable groups of smokers, including Aborigines and Torres Strait Islanders who smoked at more than double the rate of the rest of the population.

A proportion of the revenue should be made available for people to quit and discourage those considering taking it up.

The federal government is waiting on recommendations on which nicotine replacement medications will be available through its Pharmaceutical Benefits Scheme.

The Excise Tariff Amendment (Tobacco) Bill 2010 and a related bill now await royal assent.

From news.smh.com.au, June 15, 2010

OTTAWA – The black market, cross-country tobacco trade has created an underground economy Canadian authorities fear could be used to finance overseas terrorism, internal RCMP intelligence documents obtained by Canwest News Service show. The materials also indicate RCMP intelligence predicted the expansion of the underground tobacco trade shortly after the federal government shelved plans in the early 1990s to invade several Mohawk reserves. The government chose instead to lower tobacco taxes to undercut the financial incentive for smuggling.

The underground tobacco trade now spans the country, with authorities finding Mohawk-made cigarettes from Newfoundland to Vancouver Island, according to an RCMP intelligence analysis from 2008.

Black market tobacco also greases an underground economy in Canada worth hundreds of millions of dollars, supplying money for a range of illegal enterprises that could include terrorism, according to an RCMP Quebec division intelligence report for January and February 2008, obtained under the Access to Information Act

“By offering tobacco products at a better price, smugglers stimulate an underground economy within which its profits could be used to finance illegal activities,” said the report. “These activities [include] the smuggling of drugs and firearms, the financing of terrorism, money laundering, among others.”

The RCMP claim 105 crime groups are involved, at different levels, in the illegal tobacco trade.

Police, however, have not yet found firm links between tobacco and terrorism, said RCMP Sgt. Michael Harvey, who works out of Cornwall, Ont., on the doorstep of Akwesasne, a Mohawk reserve straddling the Canada-U.S. border that sits about 100 kilometres west of Montreal.

Sgt. Harvey said police traced money made by a Middle Eastern group from the purchase and reselling of Akwesasne-made cigarettes to a Middle Eastern country. What the money was used for remains unclear and the investigation is ongoing, he said.

Asian groups have also been traced sending home money made off illicit cigarettes, he added.

Illegal cigarette factories on the U.S. side of Akwesasne supply the majority of tobacco contraband in Canada, authoritiessay. Foreign-made cigarettes, including Chinese, are also present.

A source involved in the Mohawk tobacco trade said the RCMP are using the word terrorism to justify another attempt against Mohawk sovereignty.

“The cigarette trade is our economy. It has decreased the crime rate with the aboriginal population. It has employed people and it is part of our inherent rights,” said the source.

The RCMP compare the current situation with what it faced in the early 1990s during rampant tobacco smuggling fuelled by high Canadian taxes.

In response, authorities planned a major operation targeting several Mohawk communities including Akwesasne, along with Kahnawake and Kanesatake near Montreal. The Canada Security Intelligence Service, commandos from Joint Task Force Two, 2,000 RCMP, 2,000 Surete du Quebec and more than 2,000 Canadian Forces members trained for the operation dubbed Operation Campus and Operation Scorpion-Saxon, according to a recently published academic paper written by Timothy Winegard, an Oxford doctoral candidate who studies the relationship between the military and First Nations.

The threat of “bloodshed” and a “nationwide indigenous uprising” forced the shelving of plans, wrote Mr. Winegard, in his paper, The Forgotten Front of the Oka Crisis: Operation Feather/Akwesasne, published in the Fall-Winter 2009 edition of the Journal of Military and Strategic Studies.

But the cigarette war was far from over.

Smugglers, adjusting to lower margins caused by lower taxes, expanded across Canada and diversified their smuggling, a 1996 RCMP intelligence analysis said.

“As predicted, this reduction in smuggling was short lived,” said the analysis. “Smuggling networks have become so deeply entrenched that they will transport and distribute any commodity that will result in profit.”

As taxes creep up, the RCMP continues to make noise. But it’s doubtful anything will change. The cost of shutting down the trade remains too high for both Canada and the U.S., says Mr. Winegard.

“Both governments recognize the potential for immediate and prolonged violence, not only within Mohawk territory, but with the possibility of it spreading to other First Nations communities,” Mr. Winegard said.

“An unofficial, status-quo remains in place.”

nationalpost.com, June 14, 2010

Recently the chairman of a retailers’ group wrote in the Herald about his concerns over proposed restrictions around the sale of tobacco products. Health groups are saying the commercial self-interest of those backed by the tobacco industry needs to be set aside if we are to make gains against a disease that annually is responsible for 10 times the number of the deaths that occur on our roads. Following on from the rise in tobacco tax, other moves are being formulated to further reduce the impact of smoking-related diseases. Many different organisations have just finished making submissions to the Maori Affairs health select committee.

The committee’s focus is gathering evidence on the effect of tobacco on Maori communities and to consider the vision of a tobacco-free New Zealand in the future.

The Ministry of Health has also called for submissions on one particular strategy – the issue of removing tobacco displays in retail outlets. Several organisations are working to protect children from a tobacco addiction that, on average, starts below 15 years of age.

Removing these displays is part of a range of measures that will achieve this goal. Opposition from retailer organisations and tobacco companies is designed to protect turnover and profits.

So what do smokers actually think? Most smokers support putting tobacco under the counter, because they do not want their children to smoke.

Smokers themselves won’t be particularly affected by this move. They will still be able to buy tobacco at their local store or any of the usual outlets around town.

Just as they do now, customers will be able to ask for their preferred brand which will be kept in a drawer under the counter or perhaps on a covered shelf.

Many supermarkets have been selling cigarettes this way for years. What the tobacco industry is really worried about is how things will change over time. These displays are ubiquitous and they exist because they work as a de facto marketing tool.

In the near future our children will not see colourful and eye-catching displays of cigarettes sitting on the shelves next to the lollies every time they visit the dairy.

Smokers who are trying to quit will find the job a little easier when they aren’t confronted by shelves full of cigarettes each time they pay for their petrol or go to buy their milk and bread.

By John Loof, nzherald.co.nz, June 14, 2010

The average consumer won’t recognize a pack of counterfeit cigarettes, but they might recognize the taste is different.

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has been seeing an increase in counterfeit cigarettes, which mimic brand-name products, according to Teresa Merhige, resident agent in charge of the ATF’s Norfolk office. Raids this week targeted those cigarettes or other tobacco-related offenses.
Federal authorities announced Thursday they had made arrests in Hampton Roads involving people charged with counterfeit and untaxed cigarettes. Local law enforcement also raided stores on Wednesday that were believed to be selling untaxed cigarettes after being tipped off by federal authorities.

The average consumer won’t recognize a pack of counterfeit cigarettes, but they might recognize the taste is different.The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has been seeing an increase in counterfeit cigarettes, which mimic brand-name products, according to Teresa Merhige, resident agent in charge of the ATF’s Norfolk office. Raids this week targeted those cigarettes or other tobacco-related offenses.

Federal authorities announced Thursday they had made arrests in Hampton Roads involving people charged with counterfeit and untaxed cigarettes. Local law enforcement also raided stores on Wednesday that were believed to be selling untaxed cigarettes after being tipped off by federal authorities.

Eight individuals were suspected in the trafficking operation, which the U.S. Attorney’s office said originated in New Jersey and New York under two different criminal enterprises. The investigation began in June 2009.

Federal authorities said that the groups received the contraband cigarettes in exchange for more than $4 million in cash and other counterfeit goods, such as tax stamps and postage stamps.

ATF believes many of the counterfeit cigarettes might be coming in from overseas. “You’ve got to really be trained,” Merhige said. “Some of these counterfeits are pretty doggone good.”

Mike Campbell, a spokesman for ATF, said on Wednesday that these crimes are on the rise because the profit margin is quite lucrative for traffickers. “The tax on a pack of cigarettes in New York is considerably higher than in Virginia,” Campbell said. Campbell said local law enforcement officials helped in some of the undercover portions of the federal investigation.

“For example, we’ve had people come to Northern Virginia and pay for cigarettes with two kilos of cocaine,” Campbell said, illustrating the worth of the untaxed cigarettes. Campbell said that there is a state tax on cigarettes and different cities also have taxes on them as well.

Merhige said that retailers selling the untaxed cigarettes, which should have a tax stamp affixed to them by the wholesaler, is a regionwide problem that affects all of Hampton Roads.

By Austin Bogues, dailypress.com, June 11, 2010