State bills for online cigarettes
Residents told to pay taxes on out-of-state smokes
May 29, 2005
By Niki Kelly
The Journal Gazette
INDIANAPOLIS – Hundreds of Hoosiers around the state who have been purchasing cheap smokes via the Internet are getting a belated message from the state – a bill for unpaid cigarette taxes.
The Indiana Department of Revenue initiated a quasi-pilot project in April and has sent out 160 bills seeking $54,000 in cigarette taxes.
So far about $3,000 has been paid, according to Department of Revenue spokeswoman Cathy Henninger.
“I think because a few states started showing there are tax dollars being lost we decided it warranted us looking into it,” she said.
The department subpoenaed the customer and mailing lists of three major online cigarette vendors and began sending tax bills based on those purchases, which go back to July 2003.
A sample bill given to The Journal Gazette shows one person being charged $233 in cigarette taxes plus penalties and interest. The state’s cigarette tax rate is 55.5 cents per pack and the bill equates to about 420 packs.
“They’re out to get everything they can get,” said 67-year-old Darryll Monroe, a Fort Wayne business owner who bought cigarettes online four or five times but stopped months ago because he disliked the time it took to deliver the product – sometimes three or more weeks.
Monroe didn’t appear concerned about the new state strategy.
“If they come after me, I might care,” he said.
Henninger said the revenue department’s audit staff is trying to calculate how much tax money the state is losing every year through such transactions but doesn’t yet have an estimate.
In 2004, the state took in more than $338 million in cigarette taxes, down slightly from the year before.
Indiana is joining other states in trying to recoup lost tax dollars after a U.S. Court of Appeals decision cleared the way for such action.
According to Stateline.org – a national public interest Web site – Michigan is leading the effort.
State officials there have sent more than 1,500 bills for both cigarette and sales tax customers avoided through online retailers. So far, the state has garnered more than $2 million.
Other states involved, according to Stateline.org, include:
?Alaska has already collected about $100,000 – about one-fourth of the money owed – after 1,000 letters were sent to cigarette customers.
?Illinois has sent 1,300 letters and expects to collect about $100,000.
?In Connecticut, 141 people recently were mailed tax bills totaling $165,000.
?Pennsylvania revenue officials estimate that the 63 people they notified by mail collectively owe the state $26,000.
?New York City – where smokers pay an extra $3 a pack in taxes – recently billed 2,600 residents and said online cigarette purchases contributed to $75million in revenue loss.
Some states – but not Indiana – ban online cigarette sales. Recently, the nation’s major credit card companies said they would no longer accept payments for tobacco products bought online.
In other areas, members of the public have complained that the cigarette billings might also lead to similar activity to collect basic sales tax on clothing or other items bought via the Internet.
But national law enforcement associations insist that cigarette sales are different, especially because they often violate state age verification laws.
Henninger said so far people in Indiana are paying the bills.
One man called the office this week to complain that he was billed for cigarettes that his brother bought online and sent to his address as a gift. The brother – who lives in Kentucky – had paid that state’s 3-cent cigarette tax, so the Indiana man has to pay the difference between the Kentucky rate and the Indiana rate.
Hoosiers who receive a proposed assessment have 60 days to pay the bill or protest. If they do neither, they then receive a 10-day demand notice. If they again refuse to pay, a tax warrant is filed at the local county clerk’s office.
Those warrants, according to Henninger, can affect credit ratings.
So far, Indiana’s bills have just been for cigarette taxes and not applicable-use or sales taxes.
Henninger said those who buy online should just keep track of their purchases throughout the year and use a special form to declare and pay the taxes with their annual tax returns.
For answers to questions on paying such taxes, call 317-232-3376.
Calls to four major online cigarette vendors – including some Indiana subpoenaed – were not returned.
One of them is www.dirtcheapcig.com – “the last refuge of the persecuted smoker.”
A message on its Web site said it had been forced to terminate all Internet sales and shipping, perhaps because of stepped-up tax enforcement.
Tony Sams of The Journal Gazette contributed to this story.
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