Business

June 25, 2007

Pa. tracks down those who avoid tobacco tax

People who buy cigarettes online are still expected to pay tax.

By BILL TOLAND Pittsburgh Post-Gazette

Keep an eye on your mailbox – you could be getting an unexpected tax bill for thousands of dollars, that is if you’ve bought cartons of cigarettes online.

Pennsylvania is renewing its effort to hunt down tobacco tax scofflaws – both the witting and the unwitting types – by sending out more than 4,300 notices to people who have purchased cigarettes from out-of-state since January 2005.

The Department of Revenue is targeting people who have purchased at least 100 cartons of cigarettes, meaning these offenders are more likely to be reselling, and profiting from, the cigarettes than someone who bought just one or two cartons.

The notices were mailed Wednesday.

By getting cigarettes online or from out-of-state mail-order services, buyers are depriving Pennsylvania of its excise tax on tobacco, which now stands at $1.35 a pack and soon could rise to $1.45 if Gov. Ed Rendell gets his way. American Indian reservations, which have argued that their sovereignty allows them to avoid remitting state taxes, also sell lots of cigarettes via the Internet.

The state estimates that it is losing more than $200 million a year; the 4,300 people targeted this week are alone responsible for $10 million in uncollected cigarette revenue since January 2005, the Revenue Department says.

By law, people who buy tax-free cigarettes online are supposed to remit taxes to the state. They can do so by requesting a tax form from the Revenue Department by going to www.revenue.state.pa.us and click on “Individual Taxpayers” then “Cigarette Tax” on the left.

The names and addresses are being supplied through the Jenkins Act, a 58-year-old federal law that only recently has been enforced with vigor when it comes to online sales. Originally designed to target interstate cigarette smugglers, the law requires vendors to supply buyers’ names to their home states if the buyers aren’t licensed tobacco distributors, such as a supermarket.

The mailings may lead to some surprises for buyers who, tricked by Web sites advertising tax-free cigarettes, didn’t realize they were doing anything wrong. In January, a New Jersey man received a tax bill for $4,100 from the state’s treasury department for two years’ worth of taxes he didn’t pay on Pall Mall cartons.

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