Only 16% of cigarettes consumed in Michigan came about through tax evasion in 2023. This is the lowest rate we have recorded since we first published state-by-state cigarette smuggling rates in 2008. Seventeen states have higher inbound smuggling rates than Michigan. We expect Michigan’s inbound smuggling rate to drop again in the coming years due to a large tax increase in Indiana.

Other states face greater smuggling due to their higher taxes and bans. Additional states are poised to enact policies that will increase the smuggling rate across their borders, but they should not. Punishing excise taxes and outright bans on flavored nicotine products such as cigarettes encourage smugglers to make money through evasion. This often comes with rafts of unintended consequences, including public corruption, theft, and violence.

Our newest estimates indicate that California has become the Golden State of cigarette smuggling. It has the highest smuggling rate among the 48 contiguous states. A heady 53% of all the cigarettes consumed there in 2023 were smuggled. California has displaced New York at the top position, but the Empire State is still a close second with a smuggling rate of 52%. Rounding out the top five are Massachusetts (38%), New Mexico (36%) and the state of Washington (35%).

Both California and Massachusetts climbed in our ranking this year, which may be because they banned menthol cigarettes. Smokers haven’t quit smoking in droves. Rather, they switched to other products, shopped in the illicit market, or bought their smokes in lower-taxed jurisdictions such as New Hampshire.

Our data support the growing body of research that suggests illicit markets for menthol cigarettes thrive following state-imposed bans on those products. In 2023, our study of 15,000 discarded cigarette packages revealed that the percentage of smokes consumed in California that were purchased in California — that is, legally bought and smoked in the state — fell from 24.5% before the flavor ban to 21.1% after the ban. The demand for menthol cigarettes was rapidly met by illicit products.

On the other end of the smuggling spectrum, some states export more cigarettes than they consume. Wyoming is America’s top export state (when ranked as a percentage of consumption). For every 100 cigarettes consumed there, an additional 55 are smuggled out to nearby states. Wyoming is followed by Virginia (48%), Delaware (38%), New Hampshire (33%) and Idaho (28%).

Indiana is the sixth-leading state for exports. This is worth mentioning because it has long been a source state for casual shoppers from Ohio, Michigan and Illinois. We expect this to change. On July 1, Indiana’s excise tax will leap 201% to nearly $3.00 per pack. Our statistical model estimates that the Hoosier State will stop being an exporter of smuggled cigarettes as its citizens smuggle about 39 million packs per year (15% of total consumption) into Indiana in order to avoid the higher tax bite.

The statistical model we built to measure cigarette tax evasion and avoidance (what we call “smuggling”) is measured by comparing legal paid sales by state with published smoking rates. The difference between what is legally bought and what is being smoked must be explained. We and other scholars believe it is a function of smuggling.

Increased smuggling is a problem. States with relatively high excise taxes — what we call prohibition by price — have also seen brazen thefts and public corruption as well as violence against people, police and property.

Smugglers can make a lot of money, so they take great risks, at a huge cost to law enforcement and to government coffers. If government officials struggle to keep their own jails and guards from smuggling contraband into jails and prisons, how do they hope to keep untaxed tobacco and other products out of their state?

On June 2 a Michigan prison guard was sentenced to smuggling narcotics into a state facility in Jackson where he worked. In January it was reported that a guard in Milan smuggled tobacco to a federal prisoner. A guard in Terre Haute, Indiana, was sentenced last year for smuggling tobacco into a federal prison. She was reportedly paid $400 per carton.

Public policy, including banning certain types of cigarettes or increasing the excise tax, is not created in a vacuum. Each policy has a primary impact, such as raising revenue or dissuading consumption. But there are secondary, unintended consequences, such as tax evasion, avoidance and other problems.

Lawmakers everywhere should be wary of this before they consider imposing ever higher tax burdens on consumers.

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