Cigarette smuggling up, Mackinac Center says

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Capital News Service
LANSING –Almost 30 percent of the cigarettes smoked in Michigan are smuggled into the state or bought online, the 10th highest rate in the country, according to a new report.
The report came from the Mackinac Center for Public Policy in Midland. The center is a free market research and think tank.
However, the State Police can’t confirm that 29 percent and the department said it has no estimate of its own.

“Their report does not indicate how they arrived at this figure,” said Shanon Banner, the manager of public affairs at the Michigan State Police.
The Department of Treasury also disagrees with the center’s estimate and said it believes the actual figure is much lower.
“Some of the recent decline in the sales of taxable packs is likely due to smokers who have purchased cigarettes that have not been taxed by Michigan, but we do not believe it is close to the level estimated by the Mackinac Center,” he said.
“The estimate may not fully consider those people who cut back significantly, who stop smoking permanently and who never start,” said Terry Stanton, director of communications at the department.
Illegal tobacco comes into Michigan through two main channels, said Michael LaFaive, director of the Mackinac Center’s Morey Fiscal Policy Initiative.
“Individuals cross the borders for personal use, and organized criminal classes bring in contraband cigarettes by the vanful,” he said.
The smuggling rate rose by 12.7 percent between 2009 and 2011, the study said. LaFaive said that the biggest reason is Michigan’s higher tax compared to other states.
“Alternatives include driving to Indiana, buying from a commercial smuggler, buying online or even rolling them themselves,” he said.
The tax rate in Michigan is $2 per pack, higher than other Midwest states. And most of the casual smuggling comes from Indiana with its tax rate of $0.995 per pack.
Michigan ranks 11th, according to the Campaign For Tobacco-Free Kids, and the national average is $1.48.
The tax is $1.25 in Ohio and $2.52 in Wisconsin.
Virginia with the second lowest tax rate and North Carolina with the fifth, are the major sources for commercial smuggling.
In addition, North Carolina is one of two states that don’t put state tax stamps on products that makes smuggling easier because faked or stolen stamps make customers believe their cigarettes are legal.
LaFaive said another reason is that cigarettes are popular. “That’s why they drive to other states for them.”
LaFaive said, “These untaxed cigarettes are just like little gold bars to the criminal class.”
According to Banner, the State Police has a full-time Tobacco Tax Enforcement Team that investigates organized criminal enterprises.
“We do not focus on ‘smuggling’ as there is no definition of smuggling or use of the term ‘smuggling’ anywhere in the Tobacco Tax Act,” she said.
“Our enforcement efforts focus mostly on fraud — either the sales of untaxed tobacco products or tobacco products with fraudulent tobacco tax stamps,” Banner said.
LaFaive said the best method to reduce smuggling is cutting tobacco taxes, but that’s unlikely to happen.
“Lawmakers are as addicted to the revenue as smokers are to nicotine,” he said.
According to the Treasury Department, tobacco taxes brought in $968.5 million in 2011, which accounts 4 percent of the state’s total tax revenue.
Stanton said the high taxes have helped reduce the cigarette consumption over the years. Sales in Michigan were an estimated 4.2 percent lower between 2010 and 2011.
“The prevalence of smoking declines as the tax rates raise, especially among high school student falling from 38 percent in 1997 to 14 percent in 2011,” he said.

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