States hunt smokers who dodge sales tax

Several states and the District of Columbia are tracking down smokers who buy cheaper cigarettes out of their jurisdictions and have even begun tax-collection procedures that can end in liens put against the offender’s property.

Ohio and Pennsylvania have been particularly aggressive in trying to collect money from smokers who dodge local tobacco taxes by purchasing cigarettes online, from Indian reservations or from states with lower taxes.

In the District, the Office of Tax and Revenue has mailed notices demanding that cigarette buyers pay the D.C. sales tax on their past purchases via the Consumer Use tax return - an order that, if ignored, can provide the legal basis to seize a person’s home.

Natalie Wilson, a public affairs specialist for the tax office, said Thursday that 49 notices have been mailed requesting payment of $31,593, of which $17,370 has been received. Other jurisdictions such as Pennsylvania have filed liens against the homes of tax delinquents, though D.C. hasn’t gone that far yet.

“Liens have not been filed on these individuals yet,” Ms. Wilson said. “The District would not, and cannot, file liens until taxpayers have been offered an opportunity to file returns and pay taxes … and have continued to fail to pay - a process that takes a considerable period of time.”

In Pennsylvania, state officials mail notices to tax-delinquent smokers advising of cigarette tax laws and individual liability. If these notices are ignored, officials crack down on offenders, said Elizabeth Brassell of the state’s Department of Revenue.

The tough measures are having the desired effect. Nearly $23 million of the anticipated $27.5 million in back cigarette taxes has been collected via upfront payments and deferred payment plans, Ms. Brassell said.

The federal Jenkins Act mandates that tobacco sellers identify out-of-state customers and report their purchases to each buyer’s state tobacco tax administrator.

Some state officials acknowledge they generally do not go after smokers for just a few packs, but say even that can be considered a form of tax evasion. In Pennsylvania, Ms. Brassell said, officials are going after anyone who tries to find cheaper smokes across state lines.

“While the lien is an enforcement tool, we are primarily interested in educating them about liability,” Ms. Brassell said of the 1,100 liens filed.

Gladys Kramer, 82, of Butler township in Pennsylvania, is one of those smokers. She has a lien against her home to recover $4,583 in unpaid state cigarette taxes and fees. Ms. Kramer bought cigarettes by telephone from a Seneca smoke shop in New York and said the state never told her that she owed money before it sent the lien.

“It’s the most asinine thing I’ve ever heard,” Ms. Kramer said. “I don’t really object to the taxes. I object to them pulling this fast one, and now I have to pay interest on the tax because I didn’t know about it.”

Ms. Kramer said she never received a mailed notice.

“I’m asking from now on,” she said. “I still say it’s illegal to pay [state] tax [and federal] tax. I think it’s wrong.”

Traditionally, Indian reservations and online outlets have offered cigarettes at a cheaper rate per carton because of individual state tax laws - attracting Internet customers from states with high cigarette taxes. Rhode Island ranks first and New York second in the nation for cigarette taxes, at $3.46 and $2.75 per pack respectively, according to the Campaign for Tobacco-Free Kids.

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