Revealing mistake: The "blower" on the yellow Firebird never runs. NO wonder he couldn't beat the Wraith. (00:44:10)
Revealing mistake: After Packard's car crashes with the Turbo Interceptor, his body is lying on the mangled car. If you look close enough you can see Packard's head moving slightly as if trying to hold still.
Revealing mistake: As the sheriff's car broadsides the car carrier, after the explosions, you can see the cars were junkers, set up to fall off the carrier.
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."