Posted on 05/05/2005 6:20:00 AM PDT by SheLion
Michigan resident Julia Sidebottom inhaled sharply when she opened her mailbox earlier this year and was greeted with an unexpected and unwelcome bill from the state for $4,753.89 in unpaid cigarette and sales taxes.
For several years, Sidebottom's boyfriend purchased cigarettes online at www.esmokes.com, one of 13 online cigarette retailers from which Michigan recently subpoenaed customer lists. She said the bill caught her completely off guard.
"It never even crossed our minds," said Sidebottom, whose 57-year-old boyfriend suffers from Alzheimer's and has granted her power of attorney. "I search the Web all the time for the best deals on everything. Never in a million years did I expect the state to come back and say we own them money."
Sidebottom is one of more than 1,500 Michigan residents who recently were mailed bills for the cigarette and sales taxes they had avoided by buying their smokes from online retailers. After 30 days, Sidebottom's letter informed her that a 100 percent penalty would be added to her existing debt.
Since February, the letters to online cigarette purchasers have garnered Michigan more than $2 million, said Terry Stanton, spokesman for the state treasury department.
Michigan is just one of the states looking to recoup revenue lost through sales of cigarettes on the Internet, where smokes often are cheaper precisely because the transactions almost never include cigarette and sales taxes owed to to the purchaser's state.
New York City, where smokers pay an extra $3 a pack, the highest cigarette tax in the country, recently billed 2,600 Big Apple residents. City officials say tax-free cigarettes purchased online contributed to an annual loss of $75 million in revenue for state and local governments.
Cigarette taxes aside, at least 10 states (Alaska, California, Connecticut, Illinois, Michigan, North Dakota, Oregon, Pennsylvania, Rhode Island and Washington) specifically outlaw online cigarette sales, and state law enforcement officials are cracking down on the virtual vendors.
The Virginia attorney general's office recently prosecuted two online cigarette companies (www.cigoutlet.com and www.affordablecigs.com) and discovered purchases from those two sites cost 46 states $2 million in revenue. Virginia investigators shared the names of those sites' customers with officials in other states, prompting many of the letters.
In Washington state, the Department of Revenue recently filed a federal lawsuit against www.valuecigs.com in an effort to compel the company to turn over the names of its Washington customers. A 1949 federal law requires vendors who ship cigarettes across state lines to provide states with the names and addresses of purchasing residents, but the law has been poorly enforced.
States' efforts to snuff out online cigarette retailers got a boost in March when the major credit card companies announced that they would no longer accept payments for tobacco products bought online. The action cut off the payment method relied on by the vast majority of online cigarette retailers.
The credit card industry also is collaborating with the federal Bureau of Alcohol, Tobacco and Firearms and with 10 state attorneys general who also announced their intention to crack down on the online cigarette market.
The issue has caught officials' attention because in a growing number of cases, states are relying on revenue generated by smokers to balance their budgets. Since November 2001, 44 states have increased their tobacco taxes, according to the Health Policy Tracking Service, which estimates that the taxes account for 1.5 percent of all states' revenue.
In Michigan, for example, lawmakers last year raised the tax on cigarettes by 75 cents a pack; smokers now pay $2 in cigarette taxes on every pack they purchase in the Wolverine State.
Grover Norquist, who heads the anti-tax group Americans for Tax Reform, issued a statement decrying Michigan's efforts to collect taxes on cigarettes purchased online, saying state officials had resorted to "police state tactics to get their money."
"The big spenders in Michigan are so desperate for more money and more spending that they are willing to pry into their residents' online activity, harass them and threaten them, just to get their excessive pound of flesh from smokers," Norquist said.
However, the state governments learning the names of residents who had purchased smokes online argue that it isn't really analogous to officials identifying or cracking down on residents who make other types of online purchases.
According to the National Association of Attorneys General, virtually all Internet cigarette sales violate one or more state and federal laws. They include state age verification laws, state laws prohibiting the direct sale of cigarettes to consumers, federal mail fraud statutes and the federal RICO statute, designed to combat racketeering and organized crime.
Anti-tax groups say states are hoping for a one-time jump in revenue from cracking down on smokers who have escaped cigarette taxes by purchasing them online. Instead, states should be looking for ways to cut spending, they say.
But state revenue officials defend the payment campaign.
"We're in a state that's not raising taxes, and we're working our way out of a large deficit," said Geraldine Conrad, spokeswoman for the Illinois Department of Revenue. "So any owed receipt is an important receipt to us."
Send your comments on this story to letters@stateline.org. Selected reader feedback will be posted in the Letters to the editor section.
Contact Kathleen Hunter at khunter@stateline.org.
What about the online auctions? And what about the sellers of any site not charging the state taxes?
When I purchase online, if the company doesn't charge for Maine State Taxes, I surely am not going to tack it on! In fact, when I order, and if the seller doesn't make provisions to charge me for Maine Tax, there is NO space for me to insert Maine tax.
So, these states are nailing the buyer! How unfair is that?!
I have run across some sites that tack on the individual's state tax, but not many. And if they don't charge me, I don't pay it. So why should I, as the buyer, be responsible for this?
J.C.Penny's is one online company that does charge for state taxes. I can't think of any others.
State Government Glutton ping.
I believe Target does, too.
And citizens worry about the Patriot Act. This has a more far-reaching effect on average citizens than the Patriot Act ever will!
Amen!
Nice to see the Government has so much time on their hands to investigate citizens and bill them for on-line smokes, yet there's not enough time to seal the borders and enforce existing immigration laws.
These kind of taxes are reminiscent of a government-run protection racket...
Don't worry. They'll get around to those soon.
I guess the other states are waiting for New Jersey to take the lead in this.
Depending on the brand of cigarettes, that is about a 100% tax.
And they wonder why folks buy cigarettes elsewhere. . .
Stevie Ray Vaughns song the taxman is so true. Find it listen to it. Its good.
Laws do vary anymore, but in the pre-Internet mail-order days, a company could only charge state taxes if they had an outlet in that state.
For example, mail order JCPenny could charge taxes on an order if they had at least one JCPenny retail store in that state. Otherwise, they (and the purchaser) could avoid paying state tax where the purchaser lived if JCPenny had no retail outlet in the purchaser's state.
This was a great incentive for mail order companies and their out of state customers.
Ebay purchases will be next.
Amen!...............Amen and Halleluiah…try doing this with beer tax, then we’ll see the fur fly!
With no sales tax in Delaware, many people cross the state line from Pennsylvania to buy there...but you are required to report all purchases to Pennsylvania and pay "use tax" on them. Many states chase this down for big-ticket items like automobiles, but Internet commerce has broadened the problem and the enforcement.
I'm not a smoker, but I recall noting years ago that few people would break the tax seal on cigarette packs (just opening the corner). Federal offense there.
Disclaimer: IANAL
WHAAAAAAAAAAAAAAAT??????????
Nice to see the Government has so much time on their hands to investigate citizens and bill them for on-line smokes, yet there's not enough time to seal the borders and enforce existing immigration laws.
Yea, you got THAT right!
And the postal service and UPS and Fed X is reported to go along with it?
It just goes to show that the anti smoking movement is NOT about people quitting smoking. It's about the revenue smoker's provide to the state. And the state's can't stand it that smoker's are now finding cheaper ways to spend their money.
If the state's weren't such gluttons by continually raising taxes on cigarettes, then the smoker's would have continued to support their state. But when taxes went so high, the smoker's threw their hands in the air and said 'enough is enough.'
When the lawmakers are too gutless to cut spending, stick it to the smokers and tell them it's for their own good.
First I've heard about it, but if they violate existing laws...
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.