MIDLAND, Mich.,— The Mackinac Center for Public Policy, in collaboration with the Washington, D.C.-based Tax Foundation, has released its latest annual estimate of cigarette tax evasion and avoidance rates revealing significant shifts in smuggling trends across the United States. The most recently available data highlight California as the new kingpin in cigarette smuggling, while Michigan’s smuggling rate has smoldered to its lowest level since tracking began in 2008. The estimates also reflect Indiana’s upcoming dramatic cigarette tax increase.
Key Findings:
- Michigan’s Smuggling Rate Declines: Only 16% of cigarettes smoked in Michigan in 2023 were smuggled, a sharp drop from 35% in 2006. This decline is attributed to other states’ rising cigarette excise taxes. Michigan’s cigarette tax remains at $2.00 per pack, but an impending tax hike in Indiana is expected to further reduce Michigan’s inbound smuggling rate.
- Indiana’s Dramatic Increase: Indiana, currently an export state with 23 additional cigarettes smuggled out for every 100 consumed, is set to see a dramatic change. On July 1, 2025, Indiana’s cigarette tax will increase by 201% to nearly $3.00 per pack, likely turning it into a smuggling destination with an estimated 39 million packs (15% of consumption) smuggled in annually.
- National Leaders in Smuggling: California now holds the highest cigarette smuggling rate at 53%, finally surpassing New York, which had led since 2011. Other highsmuggling states include Massachusetts, New Mexico, and Washington.
- Export States: Wyoming leads as the top export state, with 55 additional cigarettes smuggled out for every 100 consumed, followed by Virginia, Delaware, and New Hampshire.
“Michigan’s smuggling rate has wafted down due in large part to other states’ increasing their cigarette excise taxes,” said Michael LaFaive, co-author of the Mackinac Center’s cigarette smuggling analyses. “We expect it to drop further as Indiana’s tax hike goes from being more than one dollar less per pack than Michigan to nearly one dollar more.”
“The law of unintended consequences is a constant feature of excise tax policy,” said Todd Nesbit, an adjunct scholar with the Mackinac Center and professor at Ball State University in Indiana. “Lawmakers impose them to thwart smoking and raise revenue but often incentivize illegal activity, such as smuggling, theft, and violence.”
The estimates show that high excise taxes and product bans, such as those on menthol cigarettes, drive smuggling, sometimes leading to public corruption and violence. Recent incidents include a Michigan prison guard sentenced for smuggling narcotics and another in Indiana paid $400 per carton to smuggle tobacco into a federal prison.
For further detailed analysis on the new estimates, read Cigarette Smuggling: Michigan’s Rate Declines While California is New Smuggling King
Explore the Mackinac Center’s interactive state-by-state cigarette smuggling map HERE.
