February 18, 2005 3:31 PM PST

Smokers asked to cough up taxes for Web buys

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August 14, 2002
Hundreds of Michigan residents are getting a big surprise this tax season--hefty tax bills for cigarettes they bought online over the past four years.

The state sent the bills to 553 residents last week after subpoenaing 13 online tobacco shops for names of Michigan customers and their order histories, a Michigan Treasury Department spokesman Caleb Buhs said on Friday. The tax bills are based on information from just one store, and the state expects to collect more names from the others.

Collectively, the people receiving this first round of bills owe the state $1.4 million, an average of $2,500 per person, Buhs said. They have until March 14 to pay.

"At its most fundamental level, this is an issue of tax fairness," State Treasurer Jay B. Rising said in a statement. "It is only right that out-of-state vendors, who conduct business only online and at arms length, follow the letter of the law. These taxes are collected by brick-and-mortar businesses in Michigan, and Internet vendors should not be allowed to skirt their responsibility."

Michigan, which levies a $2 tax on every pack of cigarettes, collected $993 million in tobacco taxes last year, Buhs said.

eSmokes.com, one of the top tobacco sellers on the Web, cancelled thousands of orders to Michigan customers after hearing about the tax crackdown, an eSmokes representative said. The representative would not discuss whether the store has been subpoenaed by Michigan or any other state.

Michigan did not disclose which companies it has subpoenaed.

Other states, including California, Washington and Wisconsin, have launched efforts to collect tobacco taxes from residents who dodged them online. A 2002 report (click for .pdf) from the U.S. General Accounting Office said most states tax the sale of cigarettes, and that online sales have cost them millions of dollars in lost revenue.

Internet shops that don't tell states about tobacco purchases by people other than licensed distributors are flouting a federal law known as the Jenkins Act. Laws that exempt online retailers from collecting sales taxes do not apply to tobacco excise taxes, the GAO report said.

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6 comments

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Is This Legal?
Since when can states charges for out of state shopping? I think the people charged should file a lawsuit, there was no warning that tax would be collected it's too late to charge after the fact.

Come on people, wake up.
Posted by Not Bugged (195 comments )
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Sadly, it is
Washington state sometimes goes after washington residents who buy smokes in Idaho and fine them. Washington has a draconian tax on cigarettes and Idaho is much lower.

Funny thing is they don't bust people coming back from an Idaho anus-mart with taxable items. You would think that the government would have more important things to do then harrass honest citizens.
Posted by Bill Dautrive (1179 comments )
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Legal or not
They want you to think it is. Charging people high taxes on cigarettes is BS. I don't see them taxing those rotundus fat people for eating at McDonalds, or those savvy, stuck up snobs that drink starbucks every morning. No no no. BLAME THE SMOKERS! CAST THEM OUT AND STEAL THEIR MONEY!

If you don't like smoking then don't smoke. Easy as that. 2nd-hand smoke is not as hazardous as once believed.

And besides...who the hell wants to go to a good bar and drink and socialize without smoking?
Posted by (461 comments )
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