The 1970's: More Aggressive Attempts to Fight Smuggling

A 2006 report from Michigan's Treasury Department correctly states that "the taxation of cigarettes faces less political opposition because it does not affect the majority of taxpayers."[60] In 1972, Sen. Harry A. Demaso, chairman of the Michigan Senate's Committee on Taxation, acknowledged this candidly: "It's a lot easier for a governor and legislators to levy a tax on cigarettes, tobacco products, liquor, and beer, than to levy broad-based taxes."[61]

The decade began with a tax rate increase in 1970 from 7 cents to 11 cents — a 57 percent increase — and it remained at 11 cents for the rest of the decade. Along with the rate increase came an intensified awareness of, and desire to fight, cigarette-related crime. In 1970 the state's greatest sources of lost cigarette sales were to other states[62] and to cigarettes "lost in transit, hijacking and thefts."[63]

At a 1970 NTTA meeting, Michigan reported 19 cigarette tax violations for the year: 10 for possessing, five for transporting, three for selling, and one "other."[64] At a 1976 NTTA meeting, an analyst concluded that Indiana's per-capita cigarette consumption "confirm[ed] that bootlegging [was] in proportion not only to actual tax rates but also to tax disparity. ..."[65] Indiana cigarettes were frequently finding their way to Michigan, reducing tax revenue to the treasury.

The 1976 NTTA minutes also describe "[o]ne smuggler [who] is known to have run three or four trailer-loads of cigarettes into Michigan every week, even when the tax there was only 5 or 6 cents. Frequently, violators feel that other criminals are more of a threat than are law enforcement agencies."[66]

This anecdote highlights one of the problems with high state tax rates. Because black markets operate outside of the legal framework that provides for protection of property, enforcement of contracts, etc., the participants perform these functions themselves. The results are often violent, especially since many of the participants are criminals even outside the context of cigarette smuggling.

Smugglers are not, however, ignorant of the laws of the legal marketplace. In order to avoid capture, they need to familiarize themselves with the laws and regulations they are breaking. George F. Stewart, executive director of the Interstate Revenue Research Center, summed it up in 1975: "These smugglers are very knowledgeable of individual state statutes, regulatory processes, and systems used to monitor or enforce cigarette tax laws. They possess a proven capability to utilize statutory weaknesses or omissions for their personal advantage."[67]

Law enforcement related to cigarette smuggling became more aggressive and complex in the 1970s, with more emphasis on interstate cooperation and an attempt to get the federal government involved. In addition, a 1970 Michigan law gave cigarette tax agents the power to arrest. In 1972, the commissioner of revenue described the Cigarette Tax Enforcement Unit in terms that suggest the unit was prepared for serious violent crime:

[There are] two full-time state police detectives assigned to it. These men have blanket authority to travel anywhere in the United States, are equipped with unmarked state cars, two-way radios, and are all armed. ... Our cigarette tax statute is unique in that our investigators have the power to make an arrest of any person violating any provision of the act in their presence.[68]

Interstate intelligence sharing was stressed more during this decade. According to the Committee on Legislation and Legal Activities of the Alcohol and Tobacco Enforcement Bureau at the Wisconsin Department of Justice, "The committee strongly recommends that ... intelligence information be freely but confidentially exchanged between states on a national as well as regional basis and that this intelligence ... be available in a centralized, computerized repository. Mr. Parker of Michigan cited the value of intelligence recently supplied him by Mr. Chayka of Wisconsin."[69]

[60] "Michigan's Cigarette and Tobacco Taxes 2001," Michigan Department of Treasury, 2006, 2.

[61] Sen. Harry A. Demaso, "Administrator-Legislative Relations," Proceedings from the 46th Annual Meetings of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1972), 35.

[62] "Report of the Committee on Tax Evasion," Proceedings from the 44th Annual Meetings of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1970), 64.

[63] Ibid.

[64] Ibid., 63

[65] "Reports of the Regional Governors - Central Region," Proceedings from the 50th Annual Meetings of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1976), 98.

[66] Ibid., 97.

[67] George F. Stewart, "The Interstate Revenue Research Center," Proceedings from the 49th Annual Meetings of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1975), 25.

[68] "Administrator- Legislative Relations," 21.

[69] "Committee on Legislation and Legal Activities," Proceedings from the 47th Annual Meetings of the National Tobacco Tax Association (Chicago: Federation of Tax Administrators, 1973), 9.