Online cigarette buyers must pay up, state says
TAXES: Smokers can buy cheap tobacco on the Internet, but now they owe money.
By LISA DEMER
Anchorage Daily News
July 21st, 2005
The state is targeting more than 600 Alaskans who bought cheap, tax-free smokes over the Internet and demanding they pay the state taxes they skirted or else.
Letters went out this week telling the smokers that as long as they pay the tax they can avoid an even steeper penalty.
Ten online vendors have as required by law provided names of customers to state tax officials in recent months, said Johanna Bales, head of the state Department of Revenue’s tobacco tax unit.
Names of about 635 people were provided by a single Internet vendor, www.esmokes.com, and the state is still working through lists from other vendors, Bales said.
“Dear Taxpayer,” the letters begin. “Under state law, the Alaska cigarette tax must be paid on all cigarettes brought or shipped into the state. … This law applies to cigarettes purchased by mail order, phone order or over the Internet.”
People who don’t pay the taxes face penalties that amount to significantly more money, Bales said. People who import untaxed cigarettes need a $25 license, and the fine for failure to have one is 100 percent of the taxes owed, plus up to another 25 percent for failing to file the taxes. A person shipping untaxed cigarettes through the mail can be fined another $5,000.
Under federal law, vendors are supposed to make monthly reports to states of the names and addresses of those who buy untaxed cigarettes. But many vendors ignore the law, Bales said. There are an estimated 1,500 tobacco sellers on the Internet, she said.
A new national effort to stop illegal Internet sales may change things.
In March, the National Association of Attorneys General met with credit card companies about ways online tobacco retailers were operating illegally. The companies agreed to reject credit card sales by such vendors. The agreement also has the backing of the federal Bureau of Alcohol, Tobacco, Firearms and Explosives.
More vendors now are reporting names of customers, Bales said. The last major crackdown by the state was in 2002, she said. Eighty-five percent of the people contacted paid up, she said.
One cigarette recipient was selling the cigarettes from a store in Sutton and was prosecuted criminally, Bales said. The seller was convicted of tax evasion, she said.
The sales at issue on esmokes.com to the 600-plus Alaska customers occurred between 2001 and 2004 and cost the state $420,000 in taxes, Bales said. At $1 a pack, the state tax rate in effect then, that amounts to 420,000 packs of illegal cigarettes brought into Alaska. The state rate now is $1.60 a pack.
Largely because of taxes, the cost of cigarettes in Alaska is rising dramatically. Not only did the state tax rise, but Anchorage increased its local cigarette tax to $1.30 a pack and the Matanuska-Borough put in place a tax of $1-a-pack as of July 1. Already there’s a movement to repeal the Mat-Su tax.
In Anchorage, state and local taxes now amount to $29 on a carton of cigarettes, bringing the retail cost of a carton of Marlboros to $55 or more. Some retail vendors on the Internet charge less than $15, plus shipping.
City revenue officials said they too would like to go after smokers buying online.
“We do believe there’s a small percentage out there of Internet sales and we are interested in pursuing that,” said city treasurer Dan Moore. “These things, especially on the Internet, are hard to detect with the tools we have at the local level.”
Laws would need to be changed to allow city and state authorities to share information in the tobacco cases, Bales said.
Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390.
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