Tax: NY Internet Tax

New York

Internet Tax Update

Educated NY smokers dodge cigarette taxes

Oct 19, 2007
By Joan Gralla
NEW YORK, Oct 19 (Reuters) – New York City’s smokers dodged as much as $43 million of cigarette taxes last year, and the worst offenders were “the more highly educated,” a new report said on Friday.
Another $105 million was siphoned off by New York state, because in 2002 it required the city to give up 46 percent of all of its cigarette tax revenues in return for agreeing to let New York City hike the tax to $1.50 a pack.
That increase was one of Mayor Michael Bloomberg’s first anti-smoking measures; he also made headlines by banning smoking in bars and restaurants.
New York City smokers pay one of the highest cigarette tax rates in the nation, a total of $3.00 a pack, because the state matched the city’s tax increase.
Even so, the rest of the state surpassed city folks when it came to ducking the tax.
Only 27 percent of city smokers said they bought no-tax or low-taxed cigarettes in a 2006 state survey, according to new report by the Independent Budget Office. In contrast, some 34 percent of other state residents said they got “under-taxed” smokes via the Internet or Indian reservations.
The tax-dodging divide was even more vivid when city dwellers were compared based on their education. “Twenty percent of smokers without high school diplomas reported evading cigarette taxes, compared with more than 60 percent for those with college degrees,” the report said.
The worst offenders lived in the borough of Queens, added the report by the Independent Budget Office, which mirrors the Congressional Budget Office but on a local level.
An Independent Budget Office spokesman was not immediately available to explain why Queens might have the most tax-avoiders, though these residents tend to rely more on cars for transportation than in any other borough except Staten Island, and thus might have more choices.
While the state this year rejected Bloomberg’s bid for another 50-cent-per-pack hike, the report noted more increases might drive more smokers to buy “under-taxed” cigarettes.
“There is considerable evidence that supports the mayor’s enthusiasm: increases in cigarette excise taxes result in reduced rates of smoking among adults and by an even greater margin among youth,” the report said.
But it concluded: “The availability of under-taxed and therefore cheaper cigarettes undermines the city’s efforts to reduce smoking and deprives the city of funds that would be otherwise directed towards public health initiatives.”
The extra tax dollars the state gets help pay for health care, the report noted.
Local prosecutors have gone after smokers who ducked taxes by buying cigarettes over the Internet, for example. The report did not examine this possible deterrent though it noted city residents with more than two cartons of untaxed cigarettes must pay the equivalent of the regular cigarette tax.

Up In Smoke: City Wants Cigarette Money
by Liz Rhoades, Managing Editor

Numerous city residents, including many from Queens, are being asked by the city to ante up thousands of dollars in cigarette taxes—or face the threat of garnishment of wages and liens on property.
Letters to 16,000 city residents went out in August to people who previously bought cigarettes over the Internet, where no payment of city or state taxes were required.
Although the sales were made in 2002 and 2003, there was no prior warning or notification to the online cigarette purchasers. Councilman David Weprin (D Hollis), chairman of the Finance Committee, said he is outraged by the city’s heavy handed action and plans to do something about it.
He was accompanied on Tuesday in his district office by a constituent, Joseph Maletzky of Bayside, who was charged $1,155 for purchasing 77 cartons of untaxed cigarettes in one year. “These are scare tactics,” Weprin said. “I am in favor of collecting taxes, but not on the backs of senior citizens and others who didn’t know they were doing anything wrong.”
Maletzky, 53, is disabled and unable to work. He counts on his disability check every month. “I’d be in big trouble if they (checks) are garnished,” he said. “The cigarette Web site never mentioned city or state taxes.”
Weprin will hold a news conference on the steps of City Hall Sunday at 11 a.m. where he will call for the Department of Finance to make several changes. He will first ask for a 30 day moratorium by the agency on collecting the back taxes. During that time, the councilman will meet with officials to come up with an equitable resolution.
He also believes each case should be handled individually. “Someone who buys 77 cartons a year is obviously not selling them in a store and should not be punished,” Weprin said. “The cigarette buyers were acting in good faith and if it’s for personal use, they shouldn’t have to pay.”
In other cases, he believes people should pay a reduced amount or work out a payment schedule. The city is demanding the tax money be paid within 30 days. “It’s absurd to have to pay up so quickly,” Weprin added.
He also wants to give the Department of Finance time to alert the public about current and future cigarette sales that are subject to taxes. Online cigarette sales are no longer legal in New York state. “People should be able to go down on an interview to discuss their cases and not to have to pay interest or penalties,” Weprin said.
If interest and penalties were applied to Maletzky, it could double his payment—something that he doesn’t want to contemplate. “My wife and I just can’t afford it,” he added.
The city is hoping to take in $6.95 million in unpaid cigarette taxes. Penalties for non payment will be assessed at up to $200 per carton. The city’s tax is $1.50 per pack of cigarettes.
Owen Stone, a Department of Finance spokesman, said his agency is standing behind its policy. “The letter people got is the warning. If they want to work out a payment plan, they can do so,” he added.
But Weprin said his office has gotten dozens of calls from residents who had no idea they were breaking the law and now are being penalized without any warning. Many, such as senior citizens, are on fixed incomes and bought cigarettes over the Internet to save money.
The city got the names of online purchases from the companies after filing a lawsuit against 30 such firms. While the case was pending, 15 of the companies settled with the city, paying fines and giving up lists of their New York City customers. Many of the companies then went out of business. Although the city eventually lost the case on a technicality, it is appealing.
For Maletzky, who now has respiratory problems in addition to other health concerns, he is still purchasing online to save money. He buys through Indian reservations, which are exempt from collecting taxes. “I know I have to quit smoking,” Maletzky added.
Jill Perrone, of Rego Park, also got a letter from the city saying she owed $1,230 for purchasing 82 cartons of cigarettes. “I was shocked at the letter and scared to death not to pay,” she said.
Perrone added that she purchased them for personal use. “It’s okay to pay taxes if you bought them in the city, but outside, you shouldn’t owe,” she said.


Feb 3, 2006

Price-conscious smokers who thought they landed fantastic bargains on the Internet have been hit by the city with bills totaling nearly $1.4 million, officials said yesterday.

A crackdown on tax-free cigarette sales on the Web hauled in $695,479 from 2,156 puffers out of the $1,354,880 demanded in the first round of bills sent out to 3,780 New York City residents through May.

A second round in August took in another $169,990 out of $507,000 due.

Now, officials say, they’re ready to get really serious and impose a $100-a-carton penalty – plus the $1.50-a-pack tax.

“We want voluntary compliance,” said Finance Department spokesman Sam Miller. “Now that we’ve sent out three notices, it’s not so voluntary anymore.”

Smokers’ free Web ride ends as city hits ’em with tax bill

January 13, 2005

Sheila Hansen received a whopping tax bill.

Smokers, beware: City Hall is coming for your wallets.

The city has quietly launched a crackdown on New Yorkers who have bought tax-free cigarettes via the Internet, the Daily News has learned.

Some 2,300 city smokers were hit this week with warning letters from the city Finance Department, threatening severe penalties unless the back taxes are paid.

It’s the first big crackdown of its kind in the city, officials said, with the smokers’ names coming from a landmark Virginia court decision involving the now-defunct Internet site.

“You owe $900 in New York City cigarette tax,” read the letter sent to Manhattan resident Sheila Hansen.

“If you fail to pay,” the note continued, “the Finance Department may also require you to pay interest on the tax due and penalties up to $200 per carton.”

In Hansen’s case, that would be a penalty tipping $12,000.

“How dare they ask for $900 in 30 days. Do they think I’m [Mayor] Bloomberg?” Hansen told The News. “The tone of the letter is so threatening. I didn’t even know I was doing anything wrong.”

The city and state boosted taxes on cigarettes to $3 a pack in July 2002, driving the cost of a pack of smokes to $7. That drove many smokers to tax-free cigs on the Internet, where 10-pack cartons can be had for less than $30.

City officials said sneaky smokers now cheat the city out of more than $40 million a year in unpaid cigarette taxes.

And they said the 2,300 smokers – representing nearly $1 million in lost tax revenue – are just a start.

They’re planning to send another 1,800 letters to parties who appear to have resold the cigarettes they purchased on

People who bought tax-free smokes from other Web sites still owe the city money, but they won’t be getting letters – not yet, anyway.

“This is the first time we’ve done this. It’s part of a new, long-term effort to ensure we’re enforcing the cigarette tax laws,” said Finance Commissioner Martha Stark.

And although the city’s efforts have been unpublicized, they won’t be for long: A newspaper ad campaign designed to educate smokers about their tax obligations will soon be unveiled.

Once the ad campaign starts, Stark said the city may decide to charge interest on any tax owed.

She said the enforcement is necessary to “level the playing field” for cigarette vendors in the city and safeguard the goal of the $3-per-pack cigarette tax.

“The tax was increased because we wanted to keep young people from starting to smoke,” Stark said. “Going on the Internet and purchasing packs without the tax evades the strategy around saving people’s lives.”

New York State tax officials also have the option of going after the puffers to collect the state’s portion of the unpaid taxes.

Hansen admitted she did buy some cartons off the Web several years ago, but said the Web site said the purchase was completely legal. She quit smoking in November 2003, she said.

“I’m losing sleep over this,” Hansen complained. “They could have at least offered a grace period, or maybe an amnesty.

“The whole thing is just such an outrage. How are they going to punish just 2,300 people when there are hundreds of thousands of others doing the same thing?”

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