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Study finds PX cigarette tax stamp not cost effective

In a feasibility study on a cigarette tax stamp program in American Samoa, the report also looked at the issue dealing with cigarettes purchased from the PX military exchange store in Tafuna, which are exempt from local and federal excise taxes.

The study, commissioned by the American Samoa Community Cancer Network and released last year, points out that cigarettes purchased from the PX (the Army and Air Force Exchange System military store) have been identified as a likely a source of casually smuggled cigarettes in the territory.

While the purchase of cigarettes at the PX is perfectly legitimate when done by qualified individuals — i.e., active duty and retired military personnel and their dependents for personal consumption — the resale of any item, including cigarettes, purchased from any PX is illegal, the study says.

“Unfortunately, the reality is that PXs in several states are known to have served as sources of casually smuggled cigarettes, and it is likely that the situation in American Samoa is no different,” according to the study conducted by consultant Bryan M. Jackson.

“In fact, there is anecdotal evidence of cigarettes purchased at the local PX being resold in ‘bush’ stores.”

“However, the financial incentive for reselling cigarettes from the PX in American Samoa − less than 20 cents per pack – is not as great as is commonly believed,” the study claims. “So while the reselling of PX cigarettes would still be illegal and entail the loss of tax revenue to the government, it remains to be seen just how large of a problem this really is.”

The Territorial Audit Office report last May on excise tax collection by the Customs Division, recommended that stamps unique to the Post Exchange (PX) Store should be issued free of charge and should be affixed to each package of cigarettes sold there.

“This will help prevent untaxed cigarettes from being purchased at the PX Store then being resold,” said TAO; while the Jackson study says it does not view a PX cigarette tax stamp “as necessary at this time” and cited the following reasons:

•         It is unclear if the number of PX cigarettes being illegally resold is a significant problem.

•         The absence of tax stamps on cigarettes offered for retail sale would indicate that those cigarettes had been smuggled (whether from the PX or elsewhere). If an investigation then determined that the PX was indeed the source of the smuggled cigarettes, appropriate action could be taken.

•         Printing, issuing, and keeping track of separate tax stamps for the PX would add considerable cost and administrative “hassles” to the tax stamp program, and unless it is clearly established that the PX is a significant source of smuggled cigarettes those added costs and administrative duties are not warranted or justified.

•         While PX cigarettes purchased by qualified individuals (i.e., active duty and retired military personnel and their dependents) and then given to individuals who are not qualified to consume them (i.e., smoke) also fall within the category of smuggled cigarettes and represent a loss of tax revenue to ASG, a separate PX tax stamp would do nothing to alleviate this problem (provided those cigarettes are not offered for resale).

As an alternative to establishing a separate tax stamp for the PX, the study recommends that cigarette sales at the PX be closely monitored, and/or the amount of cigarettes an individual is allowed to purchase at a time be limited as allowed by U.S. Department of Defense regulations.

According to the study, some states issue separate tax stamps for PX cigarettes but most do not — such as Hawai’i.