Indiana's recent increase in cigarette taxes is more than just a fiscal measure; it represents a rebirth of old-school bootlegging spirit. As the state raises the cost each pack , lawmakers are imposing hefty new penalties aimed at halting smugglers in their tracks, reminiscent of Prohibition-era raids on moonshiners and racketeers.
In many ways, it's like we're back in the '30s. Historical archives chronicle mid-1930s operations shutting down illicit bootleg beer and tobacco rings. Today, the focus has turned from covert stills to interstate highways and shopping malls, where bargain-hunting smokers avoid taxes by driving to cheaper states or taking advantage of bulk purchases.
Kentucky and Tennessee share cautionary tales. Kentucky's cheap cigarette tax (just 10 cents per pack vs. Indiana's $1) has made it a popular export hub, with smuggling routes spanning many states. Tennessee, meanwhile, saw an increase in illegal cigarette dens near its borders after raising taxes in the 2000s, similar to traditional "beer flats" but for smokes.
Indiana is pursuing smokes in a 21st-century twist, similar to its pursuit of stills in the past.
Enforcement Overhaul: What’s in the New Law?
Starting July 1, Indiana's cigarette tax will more than quadruple, and the bill includes significant enforcement tools:
- Criminalising out-of-state transactions and making high-volume tampons a felony.
- Enhanced task forces, including excise and state police, are inspecting shipments at toll booths and warehouses.
- Surprise audits of wholesalers and retailers to detect counterfeit tax stamps.
- The expected financial impact is $290 million per year, which will be used to fund public health services.
Cross-Border Temptations (and Cracks in the System)
The issue, of course, is to enforce. Indeed, Indiana's proximity to low-tax states such as Kentucky makes it ideal for illicit trade. The Tax Foundation listed Indiana as one of the top ten states most likely to see an increase in cigarette smuggling following tax increases, citing a "high likelihood of consumer evasion via border hopping and gray-market sales."
Another state to keep an eye on is Ohio, which has a low tobacco tax and a well-developed highway system. According to a 2024 Mackinac Centre study, approximately 12% of cigarettes smoked in Indiana may have come from out-of-state purchasing in the first year following the raise.
State Playbooks: Illinois & New York
Illinois:
- Illinois recently raised its nicotine-product tax to 45% of wholesale, increasing the possibility of smuggling.
- Nearly 30% of cigarettes consumed there are thought to be trafficked across state lines.
- The state imposes hefty penalties for unstamped packs—$20-$25 each box above nine—and began pursuing high-volume shipments after its 2019 tax increase ($1 per pack) resulted in a rise in contraband (turn0news28, turn0search16).
New York:
- With one of the nation's highest combined taxes (state + NYC), New York has seen smuggling rates exceed 50%, peaking at 61% during its most recent $1-a-pack increase.
- The Albany-based Bureau of Alcohol, Tobacco, and Firearms and the state's Tax Enforcement Office enforce felony-level trafficking statutes (Class D/E felonies for 10,000+ cigarettes).
A History of Hoosier Hustles
Bootlegging is essentially built into Indiana's economic DNA. During Prohibition , Indiana had some of the most active moonshine rings in the Midwest, especially in rural Southern Indiana counties such as Lawrence, Dubois, and Orange. Moonshine was frequently transported under cover of darkness along what locals dubbed 'Whisky Roads'.
The medium has changed (packs instead of pints), but the strategy remains startlingly similar: discover a legal loophole, use geography, and transport product undetected.
Even former Indiana Excise officer John Halverson recognised the parallel: "Back then, it was stills in barns." "Now there are cartons in car trunks."
Public Health Victory or Policy Gamble?
Not everyone considers the smuggling spike to be a policy failure. Even if some smokers avoid the tax, public health experts claim that higher prices overall result in significant decreases in smoking, particularly among teenagers and low-income groups.
Mike Seilback, the National Assistant Vice President for Advocacy of the American Lung Association, told The Indiana Capital Chronicle,
"Increasing tobacco prices is the single most effective way to reduce smoking, period." We expect thousands more Hoosiers to leave, and thousands more young people to never start."
Even with smuggling rates as high as 10-30%, research suggests that states can still realise considerable net income gains from tax increases—as long as enforcement is effective. Indiana's experience in 2007—a 41% reduction in sales but a 43% increase in revenue—exemplifies this trend.
Will the Strategy Work?
Indiana is wagering heavily that it will. However, the outcome depends on more than just revenue estimates. Can the state achieve the right balance between deterrent and enforcement? Will small-town merchants adapt? Will the new bootleggers—modern-day moonshine runners using SUVs and hired vans—stay one step ahead?
Time will tell. However, the spirit of the 1930s is still alive and strong on the Midwest's backroads. The stakes are larger, the vehicles are faster, and tax stamps are more difficult to fake—but what about the game? It is as old as Indiana itself.
