Association for Public Policy Analysis & Management

Introduction: Cigarette excise tax increases can influence price-sensitive smokers to quit or reduce consumption. To avoid higher state and local excise taxes, some smokers may choose to buy cigarettes from nearby Indian reservations.  Such avoidance and evasion may undermine the impact of cigarette unit price increases, which are designed to reduce smoking prevalence and cigarette consumption and to improve public health. This study assessed state-specific cigarette purchases from Indian reservations and the impact of these purchases on state tax revenues.

Methods: Data from the 2010-2011 Tobacco Use Supplement to the Current Population Survey (TUS-CPS) were used to calculate state-specific cigarette purchases from Indian reservations. The associated tax revenue losses were estimated using information collected on state polices related to tribal sales. Analyses were performed in April 2014. 

Results: Among current U.S. cigarette smokers, 3.8% of non-American Indian/Alaska Natives (AI/AN) made their most recent cigarette purchase from an Indian reservation, ranging from 1.7% in Texas to 30.0% in Oklahoma. The associated state annual excise tax revenue losses during 2010-2011 associated with these purchases ranged from $0.83 million (Wyoming) to $292 million (New York).

Conclusions: Nationwide, a small proportion of smokers purchased cigarettes from Indian reservations. However, in six states, about 15% to 30% of smokers made such purchases, resulting in considerable excise tax revenue losses. Effective strategies to reduce sales of non/lower-taxed cigarettes on Indian reservations could have an important impact on reducing smoking and associated health care costs and recouping lost revenues from Indian reservation purchases.