States hunt smokers who dodge sales tax

An estimated 53 percent of New Yorkers are buying cigarettes via the Internet, on reservations and in nearby states with cheaper taxes and bootleggers, according to the New York Association of Convenience Stores.

However, possession of unstamped cartons by anyone other than Indians in New York is a crime punishable by hefty fines and jail time.

Some New York smokers were nabbed in 2005 after a Virginia court case ordered that people who purchased cigarettes online from the Virginia vendor Cigs4Cheap.com be named. Home to Philip Morris USA, the country’s No. 1 tobacco company, Virginia ranks 49th among the nation’s 50 states, with tobacco taxes set at just 30 cents per pack. The District is tied with Maryland, which rank as seventh in the nation with a tax of $2 per pack.

After the Cigs4Cheap list was published, New York officials sent out about 2,300 bills totaling more than $1 million and have collected about $750,000. However, there is no database keeping track of smokers who purchase cigarettes online, said Tom Bergin, a spokesman for the state’s Department of Taxation and Finance.

John Kohlstrand of the Ohio Department of Taxation said authorities in that state send online cigarette purchasers a “billing notice” rather than a tax lien. Ohio ranks 24th in the nation with a $1.25 tax on each pack of cigarettes.

“It’s leveling the playing field,” said Mr. Kohlstrand, a former smoker. “For those who do smoke and buy [cigarettes] in Ohio, they have a right to expect everyone is playing with the same set of rules. If you buy something online, the perception is, ‘I don’t have to pay a sales tax on this.’ … The message is, if you do it, eventually we may catch up.”

The evasion of tobacco taxes “hurts revenue collections for the state,” said Bill Phelps, a Philip Morris spokesman. “The states expect to collect those taxes, and it really hurts the retailers who might be losing sales to competitors.”

The Ogalala Sioux Tribe in South Dakota entered into a tax collection agreement with that state about 20 years ago in which the tribe receives 96 percent of the state’s cigarette taxes collected on the reservation, totaling nearly $600,000 annually.

Because of this, Robert Palmier, the Ogalala Sioux revenue department director, says he sees the opposite of what is common elsewhere in the country - people crossing from the tribe’s Pine Ridge Reservation into neighboring Nebraska for cheaper smokes.

“We tell them not to be doing that, but it’s worth the two-mile drive to some people, I guess,” Mr. Palmier said. “Online cigarette purchases here on the reservation are little to none.”

Virginia officials are not closely monitoring cigarette sales and are not prosecuting anyone, said Joel Davison of the Virginia Department of Taxation.

In Maryland, state officials and the attorney general’s office monitor online cigarette sales. Joseph Shapiro, communications director for the comptroller of Maryland, said there has been a decline in activity and no public liens or public actions are under way.