Tax evasion activities, which cost the high-tax States and localities an estimated $391 million in revenue losses each year, are primarily due to State tax differentials and are a serious problem in 14 States and a moderate problem in another 8 States. Cigarette smuggling is a major source of revenue for organized crime groups, and this revenue is used to finance other illegal operations. The States have devoted some effort to curtailing cigarette smuggling, but these efforts have not been very effective because of the interstate aspect of the problem and the lack of adequate resources. The States have cooperated to some extent in their efforts to curtail bootlegging, but outside Federal assistance is needed to encourage greater cooperation and more coordinated law enforcement efforts. Strict enforcement of proposed Federal contraband legislation and heavier State penalties for smuggling could reduce cigarette bootlegging, but the amount of this reduction cannot be predicted with accuracy; complete elimination of cigarette smuggling will require virtual elimination of State tax differentials. The States are not likely to adopt more uniform tax rates without strong Federal incentives. The States can and should take action to strengthen their laws, work for greater cooperative efforts, and increase the resources devoted to cigarette tax law enforcement; however, only the Federal Government has the authority and resources to operate in a coordinated manner in all States affected by cigarette bootlegging. Recommendations are designed to encourage joint Federal and State cooperative actions. Appended are selected statistics on cigarette taxes, a description of statistical methodology used to estimate cigarette sales and revenue impact of cigarette bootlegging, proposed relevant Federal legislation, and testimony given to the Commission. (Author summary modified)