David M. Sullivan, left, tax administrator, and Donald W. Englert, chief revenue agent, say cigarettes sold illegally are a problem for the state and its revenue collections.

The Providence Journal / Frieda Squires

PROVIDENCE — The state in April increased the excise tax on cigarettes by $1, to $3.46 a pack, the highest in the country. The move has obvious health benefits, but it also aims to generate millions more dollars for the financially strapped state.

Now, state taxation and law-enforcement officials are poised to do their part. They are cracking down on the illegal sale of out-of-state cigarettes to make sure that the state collects as much money as possible from smokers who now plunk down some $8.35 for a pack.

“We’re working closer with the state police,” said David M. Sullivan, state tax administrator. “It’s been a constant problem, but with the increase in our cigarette tax,” officials are aggressively going after them.

Sullivan and Donald W. Englert, chief revenue agent for the Division of Taxation, said an inspector and two part-time assistants from their office seize an estimated 20 to 30 cartons of cigarettes each month that don’t have the Rhode Island excise tax stamp and are being sold illegally from one of the state’s 1,200 licensed convenience stores or retail outlets.

The inspectors often work undercover or have a plainclothes state trooper make the buys.

A big problem has been the tax stamp. Sullivan and Englert pointed out that the Rhode Island tax stamp sealed to the bottom of a pack of cigarettes is blue and very similar to the stamp issued in Virginia. As a result, investigators are seeing cigarettes from Virginia sold in Rhode Island stores. That’s a problem because the cigarette tax in Virginia is one of the lowest in the country, at 30 cents, meaning that a pack of cigarettes there sells for more than $3 less than a pack in Rhode Island.

Another major source of illegal cigarettes in Rhode Island is New Hampshire, where the sales tax on each pack is $1.08.

South Carolina, at 7 cents, has the lowest cigarette tax in the nation.

Under state law, Rhode Island residents can have up to a carton of out-of-state cigarettes in their possession. Anything more and they are subject to arrest.

Violators face up to three years in prison and a $5,000 fine.

The state is changing the color of its stamp to make sure that no one confuses it with the Virginia stamp. Englert said that state officials switch colors every three years or so to stay one step ahead of criminals who deal illegal cigarettes.

There have been some significant cigarette busts in Rhode Island in recent years. In 2006, the Johnston police raided Bada Bing Pizza and More, on Killingly Street, and found 1,500 packs stashed in a drop ceiling. The police said that about 400 packs bore obliterated New Hampshire tax stamps.

In Cumberland, the police seized cartons from a convenience store in Valley Falls that had also been illegally bought in New Hampshire. The arrest marked the third time in two months that the police had found violations at the store.

Last fall, three men were charged with selling tens of thousands of cigarettes that did not bear Rhode Island tax stamps. The trio, Mohamed Amir Tatari, 45, of Johnston; Bassam Khail, 43, of Cumberland; and Hussam Ghanam, 38, of Pawtucket, have all pleaded guilty to federal felony counts of the illegal sale of cigarettes.

The authorities say that, in Tatari’s case, the illegal cigarettes cost the state $12,911 in lost tax income.

They are scheduled to be sentenced in U.S. District Court in June. According to court filings, the government is recommending six months to a year in prison for Tatari, while the suggested sentence for Ghanam is probation with a special condition that he cooperate with the state Department of Revenue.

No recommendation has been made for Khalil.

The cigarette industry is tightly regulated.

In Rhode Island, there are 25 firms that are licensed to distribute cigarettes. Among them are CVS CareMark Pharmacy, BJ’s Wholesale Club and Cumberland Farms Inc. Each distributor is responsible for buying rolls of 30,000 tax stamps from the state Division of Taxation to affix to each pack of cigarettes.

The distributors have machines that remove each pack from its carton and seal the stamp with a heating mechanism.

With the hike in the excise tax, a roll of stamps jumped from $73,800 to $103,800.

Last year, the state sold 1,606 rolls of stamps for a total of $118,522,800. If the same number of rolls is sold this year, the stamps will generate $166,702, 800 — an increase of more than $48 million.

Cigarettes are the fourth-largest source of tax revenue for the state, after income tax, sales and use tax, and business and corporation taxes.

State police Lt. Col. Steven G. O’Donnell said the state police have met with the taxation officials about formulating a plan to go after illegal cigarette dealers. He declined to discuss specifics.

Anyone with information about illegal cigarette sales is urged to call the taxation division at (401) 574-8955.Cigarettes by the Numbers

State tax on each pack of cigarettes: $3.46

Highest in the United States.

Lowest is South Carolina: 7 cents

Cost of a roll of tax stamps: $103,800

Number of stamps in a roll: 30,000

Number of rolls sold in 2008: 1,606

Number of packs that represents: 48,180,000

R.I. cigarette-tax receipts in 2008: $118,522,800

Number of cigarette retailers in Rhode Island: 1,200

Number of distributors: 25

bmalinow@projo.com