High-tech tobacco tax stamps: New technologies for fighting counterfeiting and tax evasion

Nearly all states collect taxes on all kinds of tobacco products. When a designated vendor has paid the state excise tax on a pack of cigarettes, in many states, each one receives a stamp from the state as evidence that the state excise tax has been paid. Tax stamps have been required as long as states first started to impose taxes on tobacco products, much like stamps are required for other products and activities that the states regulate, like alcohol sales and hunting. Currently, 47 states, DC require tax stamps to be affixed to a pack of cigarettes. It is illegal in these states to sell cigarettes without a tax stamp. As excise taxes have increased on tobacco products in the last decade, it's become increasingly lucrative for organized crime to counterfeit tax stamps, attempt to sell cigarettes from lower-tax states in higher ones, or attempt to sell unstamped cigarettes altogether. The majority of states are using outdated stamping methods that have little to no protection from counterfeiting. States lose millions of dollars of revenue each year because of this. To combat this, California introduced a new counterfeit-resistant tax stamp in 2005 leading to an additional $120 million in state revenue without increasing the excise tax. Since then three other states have followed California's lead in combating tobacco tax evasion by introducing their own versions of counterfeit-resistant tax stamps. This presentation will explain how counterfeit-resistant tax stamps work, and explore whether these increased measures to combat tax evasion are cost-effective.