Michigan, a ripe destination for illegal cigarettes because of its high per-pack tax, could start going after store owners and others caught with smaller quantities of tobacco smuggled from around the country.

State law generally allows incarceration or fines for violations involving six or more cartons, or more than 1,200 cigarettes. Bills up for approval during December’s lame-duck legislative session would make it a civil infraction to have as few as 180 illegal cigarettes, nearly one carton’s worth.

The state treasurer also would be able to suspend a store’s sales tax license if it sells tobacco products illegally.

Police say putting retailers out of business, if only temporarily, could be a powerful tool because tobacco prosecutions result in light sentences and aren’t taken as seriously in a justice system battling violent crime.

“If you take away their right to be involved in the sale of tobacco, that would be a significant deterrent not to violate the act,” said Michigan State Police Detective Lt. Judy Anderson, who leads the agency’s Tobacco Tax Enforcement Team, which has just five staff.

Every pack of cigarettes sold in Michigan is supposed to be stamped _ proof that licensed wholesalers paid the state’s $2-a-pack tax, which is passed along to customers who buy smokes at convenience stores, groceries and other locations.

But because Michigan’s cigarette tax is sixth-highest in the country, smugglers are capitalizing at the expense of the state budget.

Small-time activity involves residents simply driving to Indiana or Ohio, where taxes are up to $1 less per pack. It’s illegal to possess cigarettes in Michigan without a Michigan tax sticker.

Police seem more intent on catching bigger fish, though.

Federal and state authorities in November arrested 18 men in the Detroit area on charges of trafficking 104,000 cartons of contraband cigarettes, representing $2 million in lost tax revenue. The source of the tobacco wasn’t released. It’s lucrative to get cigarettes in other states such as North Carolina, where the tax is 35 cents a pack, and resell them for a profit in Michigan.

A federal indictment unsealed in September accused eight people, including a father and three sons, of conspiring to deal illegal cigarettes delivered to small stores in the Detroit area. The main defendant allegedly bought 949,000 cigarettes alone from an informant and undercover agent in 2007.

The state Department of Treasury also flagged more than 23,000 residents over 31/2 years who owe taxes on tobacco bought from Internet or mail-order companies. Total taxes and penalties from those sales was $36 million.

It’s tough to quantify just how much revenue Michigan loses every year because of black-market cigarettes, though one estimate said it could reach $138 million _ most of which would go to K-12 public schools and health care for the poor and disabled.

Taxable cigarette sales are down 30 percent since 2001, when the cigarette tax was 75 cents a pack. It rose to $1.25 in 2002 under Republican Gov. John Engler and $2 in 2004 under Democratic Gov. Jennifer Granholm.

Much of the sales decline is because people smoke less when the “sin” tax goes up, according to the state. But some of the drop is due to smokers knowingly or unknowingly buying cigarettes that didn’t go through proper distribution channels.

Wholesalers that collect $1.1 billion a year in tobacco taxes for Michigan say the legislation is a small step forward but more must be done.

“We would argue we need to do much more in cigarette tax enforcement,” said Polly Reber, president of the Michigan Distributors and Vendors Association. “The state would get huge return on their investment.”

But tobacco cases are complex and take a lot of time. There’s a reluctance to divert investigators from other tasks, and state government isn’t exactly on a hiring spree - especially with budget cuts looming amid concerns the economy is falling into a deep recession.

Officers rely on tips and sometimes go undercover to apprehend defendants. They inspect stamps on packs of cigarettes at stores.

State authorities also get assistance from the federal Bureau of Alcohol, Tobacco, Firearms and Explosives. The agency’s primary focus is violent crime, however.

“We are trying to tramp up our efforts in the (tobacco) arena. But realistically, everybody’s budget is tight and it’s going to be budget-driven,” said Phil Awe, ATF’s chief of alcohol and tobacco enforcement.

The Michigan legislation, which is pending in the House after winning Senate approval earlier, is backed by the tobacco industry. The industry opposes higher cigarette taxes as unfair but at the same time wants to ensure products are kept inside a legitimate distribution system.

“You want customers to be absolutely satisfied,” said David Sutton, spokesman for Philip Morris USA, the No. 1 U.S. cigarette maker. “With contraband trade, you don’t know how old it is, how it’s stored, how’s it’s been shipped.”

This entry was posted on Monday, December 1st, 2008 at 3:57 pm and is filed under Breaking News, Community, Health Care.
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