Introduction
The State of Michigan has statutes that ensure all the individuals and organizations that deal on cigarettes pay taxes. As such, it is a crime for anyone to purchase cigarettes and all the products that relate to it through the internet, by mail or other methods that avoid the paying of tax. Such methods are only applicable if the dealer has a license from the Michigan State, and every packet of cigarette has a tobacco stamp of Michigan affixed on it. The core objective of this paper will be to review in detail cigarette tax in the Michigan States and the issues that its efficiency corrects in the state.
Framework of the Cigarette Tax
Any person who engages in the manufacturing or selling of cigarettes is under the obligation of the Michigan Tobacco Product Tax Act (MTPTA) to pay fees and taxes that govern the dealing on tobacco products (Michigan Department of Treasury, 2012). However, the individuals who produce the products in their places of residence through the use of a mechanical device which is not a machine for manufacturing cigarettes and meet the exemption for self-consumption in the 2012 Public Act 188 are exempt from the requirement to possess a license. A cigarettes’ manufacturer is thus required by the Michigan Law 205.426c to create an eligible escrow bank account and fund it. Additionally, the manufacturer should submit a compliance certificate to the Michigan Treasury Department.
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The manufacturer should also give the copies of the compliance certificate to the Attorney General of Michigan. Michigan Law 205.426d outlines the equity assessment that a cigarette manufacturer is subject to within his operations (Michigan Department of Treasury, 2012). A manufacturer who fails to comply with any of the requirements of the statutes can face civil and criminal penalties that include the revocation of tobacco products tax licenses that are in existence. Also imperative to note is that any person who possesses or sells cigarette packages that lack the Michigan tax stamps for cigarettes violates the law. Retailers who engage in the selling of cigarette packages that do not have tax stamps are liable to the asset seizures, penalty, and the forfeiture provisions in the MTPTA.
Purpose of the Cigarette Tax
Michigan is one of the states that impose high taxes on tobacco products. The average taxation of two dollars per packet that contains twenty cigarettes or twenty dollars per carton that contains ten packets of cigarettes make the state fall at the tenth position in the United States. As such, it is one of the states that charge high taxes on cigarettes. About thirty percent of cigarettes that the residents of Michigan consume are illegally brought from other states and through online sources because such consumers find it expensive to buy cigarettes produced in Michigan because of the high taxation. As a result, the state has been losing lots of taxes to its neighbors like Indiana whose taxes on cigarettes are low and thus the cigarettes are affordable by the average income earners from Michigan.
For that reason, the Michigan State has come up with laws on cigarette taxation that stipulate that all the cigarettes within Michigan must have the tax stamps. The law strives at ensuring that the residents do not consume cheap cigarettes that they illegally acquire from the neighboring states (Olson, Kleidon, & Michigan, 2007). Any person who sells or consumes cigarettes that do not possess the Michigan tax stamps can face a penalty of up to five years in jail. Such a move is to ensure that the federal government seals all the loopholes that can result in tax evasion.
Michigan’s high taxes attribute to the decline in cigarette smoking which also affects the total of the revenue collection from cigarettes. For instance, the state collected 907.6 million dollars of taxes in the financial year of 2011 and the decline was four percent of the collection of 2010 (Anders, 2013). The state uses the taxes from cigarettes to fund Medicaid, schools, and health schemes among other general expenses. Therefore, if there are no strict measures that stop evasion of taxes by the producers and consumers of cigarettes then the general expenses that the state should fund will be at a standstill. The taxes should fund the health initiatives of the smokers who suffer from various chronic diseases.
The measures that the Michigan Laws on taxation of cigarettes outline also focus on curbing smuggling of cigarettes from the neighboring states with low taxation rates (Henchman, 2014). Researchers indicate that the percentage of illicit trade in cigarettes is always higher in the states that charge higher taxes like Michigan, New York, New Jersey, and Vermont among other states. On the other hand, the rate of cigarette smuggling is low in the states that charge low taxes such as Indiana, Kentucky, North Carolina, and North Dakota whose taxation rate is below a dollar per a packet of cigarette.
It is also imperative to note that Michigan state charges high taxes on cigarettes because it intends on reducing the number of smokers which will also lead to the reduction in the number of individuals who suffer from chronic diseases that are as a result of smoking such as lung cancer. The aim of the high tax rates is to champion for the future generation who will be free from tobacco consumption.
Conclusion
In conclusion, the high tax rates by the Michigan State on cigarettes which stands at two dollars a packet has various roles to play in the economy. Firstly, it aims at reducing the number of smokers and thereby, having a healthy workforce that can work and generate more revenue for the state. The reduction in the number of smokers will also help in reducing the burden of health care due to the costly medical care that diseases such as lung cancer require to treat. Secondly, the high taxes that the state generates from cigarette consumption support schools and hospitals (Anders, 2013).
References
Anders, M. (2013). Michigan's cigarette tax makes smugglers out of smokers who want to evade high prices. http://www.mlive.com/business/index.ssf/2013/01/cigarette_smuggling.html
Henchman, J., & Drenkard, S. (2014). Cigarette Taxes and Cigarette Smuggling by State-Tax Foundation. taxfoundation.org/sites/default/files/docs/FF421.pdf
Michigan Department of Treasury. (2012). Notice for those operating, or permitting others to Operate, Cigarette Making Machines in Michigan following the Enactment of Public Act188 of 2012. http://www.michigan.gov/documents/taxes/Public_Act_188_of_2012_Notice_391321_7.pdf
Olson, G. S., Kleidon, B., & Michigan. (2007). The Michigan State budget: Fiscal year 2000-01 through fiscal year 2005-06: six years of significant change . Lansing, Mich: Senate Fiscal Agency.
