Of course it will be taxed, and probably at a higher rate than other products. The trick is to tax it at such a level that fraud (smuggling) is contained within acceptable bounds. For example, normal VAT here in the Netherlands (only country I know the rates of by heart, I have no reason to believe that it's significantly different in the rest of Western Europe) is 19% ; cigarettes are taxed at close to 300 % (VAT + excise). Yet still smuggling cigarettes is a relatively small problem, which indicates that this level can be borne by the market.
Note that I support nor advocate 'sin' or 'health' taxes, be it for moral or utilitarian reasons, I'm simply saying that even at 300% the amount of people that turn to the black market is fairly small. But even when taxing them at normal rates (VAT only) they would already bring in money - everything is better than the 0 they bring in now, or negative if you take into account the costs that arise from situations that exist only because drugs are illegal.
Seeing the sales of cigarettes on reservation that do not honor state taxes and the number of customers buying, I would say paragraph one is not completely true. Smuggling is happening, it is just from a legal source.
I don't understand - yes there is smuggling, but on a small as I indicated. In Western Europe (the area I restricted myself to in my post) most of the fraudulent import comes from Eastern Europe and Russia, so yes they are bought legally there and then imported. Likewise, a fair number of people drive to Luxembourg where the tax rates are lower.
I take it that you mean that (Native American or Aboriginal?) reservations have autonomy when it comes to taxation and that they leverage that to attract tobacco customers from outside the reservation. Which makes sense, but I'm hard pressed to believe that it's a significant amount of total consumption. My back-of-the-envelope calculations (based on estimates of the World Bank and 40% of the EU population smoking 10 cigarettes a day) say that in the EU on less than 10% of all cigarettes smoked, no taxes have been paid. Which is not that much.
Of course if you have numbers that show that in the case you indicate the percentages are different I'd be interested to learn.
Note that I support nor advocate 'sin' or 'health' taxes, be it for moral or utilitarian reasons, I'm simply saying that even at 300% the amount of people that turn to the black market is fairly small. But even when taxing them at normal rates (VAT only) they would already bring in money - everything is better than the 0 they bring in now, or negative if you take into account the costs that arise from situations that exist only because drugs are illegal.
(edit: added missing half sentence)