City authorities intent on recovering millions of dollars in lost cigarette taxes are investigating Philip Morris Inc. and Lorillard Tobacco Co., makers of the cigarettes most frequently smuggled up the Interstate 95 corridor from Virginia into New York. Bootleggers sell the contraband cigarettes to small retailers, bodegas and newsstands here and the tax is never collected. The smuggling system seems to thrive for several reasons. Companies can increase their market share and make use of the smuggling pipeline without any legal responsibility. Big discount stores in Virginia can legally sell tons of cigarettes.
Bootleggers see only light penalties and heavy profits.
And the companies say it is not their job to act as police. New York authorities believe companies track sales of their cigarettes and knowingly oversupply Virginia stores to get their excess products to New York. Officials do not know precisely how much New York has lost in unpaid taxes, but one distributor estimates the amount to be hundreds of millions of dollars a year. The lower prices of smuggled cigarettes are rarely passed on to the consumer and mostly benefit the smugglers and the retailers who buy from the bootleggers. Philip Morris officials deny that the company has any role in creating or encouraging a black market.