Michigan's being cheated on millions in cigarette taxes because of smugglers. Why? Check out this video from the Mackinac Center. Also, here's what they wrote about the problem.
In a 2010 update to their 2008 study "Cigarette Taxes and Smuggling" (http://www.mackinac.org/10005), Michael LaFaive and Todd Nesbit show the strong correlation between high cigarette taxes and smuggling, theft and other violent crimes.
(Note: The study covers 47 of the 48 contiguous states, omitting North Carolina as the basic source state for smuggled cigarettes.)