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.
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.