Sheriff Loomis: You listen to me, you son-of-a-bitch! There's a kid out there usin' his car to kill people, not that it's such a big deal since it seems to be your gang he's got it in for... so, if you guys try to take the law into your own hands, and that killer turns up dead, I'm gonna see you all sniffin' cyanide in the Arizona gas chamber.
Packard Walsh: And, uh, Skank, do me a favor, will ya? Get rid of that zombie-piss you're drinkin' before it turns you into a mushroom.
Billy Hankins: Look, do you mind if I lay my towel here? I ain't welcome over there.
Jake: Why not?
Billy Hankins: Why ain't I welcome or it's ok to lay here?
Jake: Take your pick.
Skank: We'll remind the cockstacker.
Sheriff Loomis: Forget it, Murphy. Roadblocks won't stop somethin' that can't be stopped.
Murphy: Loomis, what're you sayin'?
Sheriff Loomis: I'm sayin' it's over. There's nobody left in Packard's gang to kill.
Sheriff Loomis: I don't need a warrant when I have this badge.
Gutterboy: But we know our constipational rights, sir, and you can't just come in here and.
Gutterboy: Skank.
Skank: Yeah?
Gutterboy: Who is that guy?
Skank: I don't know, but whoever he was, he's weird and pissed off.
Rughead: This gang thing was okay when we had the edge, but now that there's that wraith out there that killed Oggie.
Skank: A what out there, man?
Rughead: A wraith, man! A ghost! A evil spirit - and it ain't cool.
Keri Johnson: You think I'd go to California with you? I'd rather go to Nogales, have the Gutterboy's cretin children and die than to be with you.
Packard Walsh: You better shut up now, Keri, or I'm gonna have to.
Keri Johnson: Yeah, you can kill me, too, Packard, but you can never make me love you.
Packard Walsh: Things are getting a little too equal these days.
Keri Johnson: I dreamed that the man in the moon was laughing at me.
Jake: He does laugh all the time. You ever notice that?
Keri Johnson: Then I was headed east on the back of a motorcycle and the driver was Jamie Henkins. What's strange is that Jamie's dead.
Answer: After the first race where Augie is killed the sheriff says "I've been waiting to catch you guys in the act. Been waiting and watching." So we can assume there were complaints made however the sheriff may not have had enough evidence to shut them down completly. As far as the state police, I'm not sure. May be a jurisdictional thing.
Mister Ed
I agree with this answer. Packard was very careful not to flagrantly break any laws. He even said this to Loomis in the "paper doll" scene later in the movie - Packard says that the gang hadn't done anything except "bust the speed limit."